South Korea Stocks Tumble, Set for Worst Week Since 1997 Crisis

By Saeromi Shin

Oct. 24 (Bloomberg) -- South Korea's stocks fell in the Kospi Index's worst week since the 1997 Asian financial crisis, as the slowest growth in four years stoked concern the economy is headed for a recession. The won declined and bonds gained.

Samsung Electronics Co., Asia's largest maker of computer chips and the biggest constituent on the Kospi, lost 5.2 percent after quarterly profit fell the most in three years. Lotte Shopping Co. fell 8.5 percent on earnings that missed analyst estimates. The economy grew 0.6 percent in the third quarter as exports declined 1.8 percent, the central bank said today.

``The overall global economic condition is likely to be in bad shape,'' said Baik Jae Yer, a fund manager at Korea Investment Trust Management Co. in Seoul, which oversees the equivalent of $5.6 billion in equities. ``Earnings momentum could slow down in the next one or two quarters.''

The Kospi fell 64.62, or 6.2 percent, to 985.09 as of 12:21 p.m. in Seoul, set to close below 1,000 for the first time since June 2005. The measure has fallen 17 percent this week, the biggest weekly slump since December 1997. The won, Asia's worst performing currency this year, fell 2.4 percent to 1,442.90 per dollar, Seoul Money Brokerage Services said.

The Korea Exchange temporarily halted program trading of Kospi shares for the 11th time this year after index futures plunged. The index has tumbled 31 percent this month as concerns that companies will struggle to refinance debt prompted the government to announce measures to support banks and builders.

Slower Growth

From a year earlier, South Korea's $970 billion economy expanded 3.9 percent, the slowest pace since 2005, and down from 4.8 percent growth in the second quarter, today's central bank report showed. The risk of recession may force the government to cut interest rates and step up aid measures, said Kim Jae Eun, an economist at Hana Daetoo Securities Co.

The Bank of Korea cut benchmark interest rate to 5 percent on Oct. 9, the first reduction in four years. The board meets again on Nov. 7. South Korea this week pledged $130 billion, equivalent to 14 percent of gross domestic product, to support lenders as the credit crunch saps access to foreign funds.

The government will also spend as much as 8 trillion won ($5.6 billion) to revive the construction industry, including buying land and unsold homes. The central bank said yesterday it will make an extra 2.5 trillion won available for banks to lend at discount rates to small companies.

The financial-aid plan may help South Korea avert a repeat of 1997 when it needed the emergency $57 billion bailout from the International Monetary Fund.

`Really Fragile'

Samsung Electronics fell 5.2 percent to 448,000 won, taking its four-day decline to 14 percent. Third-quarter net income slumped 44 percent as excess supply drove down semiconductor and display prices.

Lotte, the largest South Korean department-store operator, tumbled 8.5 percent to 140,500 won, capping an eight-day, 37 percent plunge. The shares trade at almost a third of the price they were sold in the company's 2006 initial public offering. Third-quarter net profit fell 19 percent to 122.7 billion won, less than the median analyst forecast of 153 billion won in a Bloomberg survey.

Investors are selling emerging-market assets as the credit crisis, stemming from home-loan defaults in the U.S., threatens to drag the global economy into recession. The won has fallen 7.6 percent this week versus the dollar to near its weakest in a decade. Overseas investors sold a net 4 trillion won of Kospi shares in the past month.

``Sentiment is really fragile,'' said Jo Hyun Suk, a currency dealer with Korea Exchange Bank in Seoul. ``The foreign exchange is being easily swayed by any bad news.''

Government bonds are poised for a fourth weekly advance on the interest-rate cut speculation. The yield on the 5.5 percent note due June 2011 fell 32 basis points, or 0.31 percentage point this week, to 4.84 percent, according to Korea Exchange. The price of the security rose 0.86, or 86 won per 10,000 face amount to 103.67.

To contact the reporter on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net.