Is Korea safe from emerging market jitters?Updated: 2014-02-05 PM 9:59:06 (KST)
Is Korea headed for a crisis along with other emerging market economies, or will it differentiate itself from the rest of the pack?
The benchmark KOSPI closed at a five-month low on Tuesday, and offshore investors sold a net 1.4 billion U.S. dollars worth of KOSPI stocks in January.
Despite the major sell-off however, Korea still seems on a different path from that of developing economies.
"The struggling developing countries all have something in common: current account deficits, budget deficits and political turmoil. Korea, in contrast, is free from political strife and has healthy economic fundamentals that make it stand in stark contrast to those countries."
During the huge stock sell-off in January, foreign funds flowed into the bond market -- 1.6 billion U.S. dollars worth -- which is some 200 million dollars more than the amount they sold in the stock market.
Korea's credit default swap premium for its sovereign bonds, which shows a country's default risk, also stands much lower than that of other emerging market economies, at 75.5.
This is compared to India's 275.4 and Indonesia's 235.2.
Korea also has an ample amount of foreign currency reserves, as it has posted current account surpluses for the past 24 months.
On top of that, there's Korea's large foreign exchange reserves, which hit a record high of 348 billion U.S. dollars last month.
"Experts say that given its strong economic fundamentals, it's highly unlikely that Korea will be hit by the crisis hitting developing countries. But since foreign investors do hold a huge proportion of Korean stocks and bonds, the hint of a crisis could cause a major market shake-up this year.
Yoo Li-an, Arirang News.
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