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jvalmer
Joined: 06 Jun 2003
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 Posted: Thu Oct 16, 2008 3:59 am Post subject: |
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| marlow wrote: |
This country no longer has a real currency as far as I'm concerned. A normal currency doesn't slump 6% each of three consecutive days like it did last week, dramatically recover, and then drop like 8-10% in a day like it's doing today, especially when the yen is only down like 0.1% and the HKD is basically unchanged.
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HKD is pegged to the USD and trades within a small band. This is done due to Hong Kong's Black Sunday in 1983, and to prevent being used as a proxy for speculation on the renminbi. That is why the HKD is unchanged. |
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bassexpander
Joined: 13 Sep 2007
Location: Someplace you'd rather be.
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| Posted: Thu Oct 16, 2008 4:40 am Post subject: |
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Here is your explanation as to why the won dropped... banks are being downgraded:
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Korean Won Falls Most Since 1997, Stocks Drop on S&P Warning
By Kim Kyoungwha and Saeromi Shin
Enlarge Image/Details
Oct. 16 (Bloomberg) -- South Korea's won slumped by the most since the International Monetary Fund bailed the nation out in 1997, after Standard & Poor's said banks may struggle to refinance their debt.
The Kospi stock index tumbled as much as 10 percent, the biggest drop since September 2001, as S&P said it may cut credit ratings for Kookmin Bank and six other financial companies. The cost of protecting South Korean government debt from default rose. The won fell 9.7 percent to 1,373 per dollar as of the 3 p.m. close, Seoul Money Brokerage Services Ltd. said. The currency's 32 percent slump this year threatens to increase the cost of financing dollar-denominated debt.
``Concerns about banks are at the heart of these sell- offs,'' said Kim Eun Soo, head of equities at PCA Investment Trust Management Co., which manages the equivalent of $1.8 billion in equities in Seoul. ``The S&P news was just a warning, but it leaves open the possibility of downgrades on domestic financial institutions.''
The slump in stocks and the won increased pressure on policy makers to provide finance companies with emergency funding, following similar actions by Europe, Japan and Australia. S&P, in a report released yesterday, said Korean banks face a more than 50 percent chance that the global credit crunch could threaten their foreign-currency funding.
The country's sovereign credit rating outlook is stable, Takahira Ogawa, a Singapore-based director of sovereign ratings at S&P said today, adding that the agency may reassess the situation if pressure on banks' liquidity and the won persist.
Overseas Sellers
Declines in South Korea's equities and currency echo similar slumps in emerging markets worldwide as the financial turmoil prompts investors to avoid assets in more risky markets. The MSCI Emerging Market Index has tumbled 53 percent in 2008.
Overseas investors have sold a net 31 trillion won ($23 billion) of South Korean stocks this year, including 636 billion won today.
South Korea's short-term external debt has almost tripled to $175.65 billion as of June 30 from the end of 2005 as exporters locked in dollar rates for their overseas earnings and local banks borrowed to meet those commitments. The nation required a $57 billion IMF loan during the Asian financial crisis to repay overseas debt used for investment and construction projects.
The country has been building up its currency reserves since the crisis led to the won losing half its value in 1997. Foreign-exchange reserves dropped in each of the last six months, sliding $24.6 billion to $239.7 billion as policy makers intervened to stem the won's slide. Central banks buy or sell overseas currencies to influence exchange rates.
`Most Vulnerable'
South Korea plans to sell as much as $5 billion in foreign- currency denominated bonds next year, which would be South Korea's biggest sale of foreign bonds since 1998 and is part of a planned issuance of 15 trillion won of debt next year for the government's so-called currency stabilization fund, a finance ministry official who declined to be named said today.
``The government will have to take some kind of measure in line with other countries if it wants to arrest overseas investors' concerns,'' said Kim Sung Kwang, who helps manage the equivalent of $1 billion at Hanwha Investment Trust Management Co. in Seoul. ``If the funding squeeze continues it will start affecting banks' fundamentals.''
Korea's short-term debt is equal to 76 percent of foreign reserves, which is ``the most vulnerable in Asia'' as the nation's current-account deficit widens, Brown Brothers Harriman & Co.'s strategist Win Thin wrote in a note to clients. The ratio topped 250 percent during the 1997-98 crisis.
Program Trading
The cost of protecting South Korea's external debt from default rose, according to traders of credit-default swaps. Five-year contracts on that debt were quoted 90 basis points higher at 380, according to data from ICAP Plc. The price, which rises as perceptions of credit quality fall, is equivalent to $380,000 annually to protect $10 million in debt.
The Kospi dropped 9.4 percent to 1,213.78, with financial stocks contributing the most to the decline. Domestic banks have $235.3 billion of foreign-currency liabilities, according to the Financial Supervisory Service.
KB Financial Group Inc., the holding company for Kookmin Bank, slumped by the daily limit of 15 percent to 43,400 won. A downgrade by S&P would be the first for Kookmin since 1999. Woori Finance Holdings Co., which controls Woori Bank, plunged 15 percent to 11,050 won.
South Korea's stock exchange halted program trading of Kospi shares for five minutes after the futures on the index plunged. The futures lost 10 percent.
Overseas financial institutions including HSBC Holdings Plc, Deutsche Bank AG and JPMorgan Chase & Co. are reducing their credit lines for South Korean banks, the Seoul Economic Daily reported, citing financial industry officials it didn't name.
Money Market Worries
Korea's money markets are also showing ``signs of stress'' as funding for banks remains challenging, Linan Liu, an analyst at Morgan Stanley in Hong Kong, wrote in a report yesterday.
The rate on 91-day certificate of deposits, a key money market rate in Korea, rose to 6.06 percent, the highest level since January 2001. The spread between bonds issued by banks and government debt with maturities of one to three years, a measure of credit risk for banks in local currency terms, has widened to the most since 2000, Liu said.
Korea's local-currency bonds fell, ending a seven-day run of gains that was spurred by investors seeking the relative safety of government debt. The yield on the 5.5 percent note due June 2011 rose 5 basis points to 5.23 percent, according to Korea Exchange. The price fell 0.11, or 11 won per 10,000 won face amount, to 102.58. A basis point is 0.01 percentage point.
``Money is not circulating smoothly enough, and that worries investors,'' said Kim Young Il, head of equities at Korea Investment Trust Management Co. in Seoul, which manages the equivalent of $6.2 billion in equities.
To contact the reporters on this story: Kim Kyoungwha in Beijing at [email protected]; Saeromi Shin in Seoul at [email protected].
Last Updated: October 16, 2008 05:33 EDT |
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sojourner1
Joined: 17 Apr 2007
Location: Where meggi swim and 2 wheeled tractors go sput put chug alugg pug pug
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| Posted: Thu Oct 16, 2008 5:04 am Post subject: |
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Oh shit, the banks are being downgraded.
Can I say we're headed for the great crash of 2009 synonymous with the great crash of 1929? This global economics downturn thing is very serious and there's nothing we can do but be chicken shit scared about it. |
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MrRogers
Joined: 29 Jun 2008
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| Posted: Thu Oct 16, 2008 5:17 am Post subject: |
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| yes, BBC TV World News just did a piece about the banks! |
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bassexpander
Joined: 13 Sep 2007
Location: Someplace you'd rather be.
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| Posted: Thu Oct 16, 2008 5:27 am Post subject: |
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| Fill me in on exactly what this downgrade means? |
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Big Pun Lives
Joined: 12 Oct 2008
Location: Seoul, South Korea
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| Posted: Thu Oct 16, 2008 7:32 am Post subject: |
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| bassexpander wrote: |
| Fill me in on exactly what this downgrade means? |
Sorry to make this rudimentary and long winded, but it more simple than people realize.
In a nutshell, the banks credit rating is downgraded due to liquidity issues surrounding it's unsecured assets and their exposure to risk.
Meaning;
When a bank makes a loan, it assumes some amount of risk - When Banks go out into the open market, borrowing money from other banks, (mostly in dollars) the interest rate that they depends on their rating ( how much risk they have and how much they have borrowed as a percentage of their total assets.)
The more financially solid they are, (good assets, not too much debt) the better the rating and thus they have smaller interest payments on loans...
So many banks worldwide were exposed to some bad assets, (sub prime derivitives, hedge funds, credit swaps...etc) so now they need to go into the open market and compete with other banks for money. Lower credit rating plus a tight money supply means banks are going to have to pay quite a bit more in interest...
Still with me?
All right, now it gets tricky because these banks are borrowing money in other currencies. Korean banks need to borrow money from abroad. So they need to "offer" more won to entice people to "offer" their dollars, euros, yen, or whatever currency in return, (but mostly dollars) hence Won falls 6% in one day compared to other major currencies.
Now it gets SUPER tricky when the government is in the open market (bond, treasury) as well, flooding the market with won trying to buy dollars as well if it has any debt payments to be made, and with KOPSI equities market has capital fleeing out means less demand for won, more demand for dollars...
Couple the downgrading with a major recession with it's main export partner and you have even more potential for the won to fall....
I was an econ major in college and folks....in my opinion, it is going to be rough in the next year and a half. Not to rain on peoples parades but the won could easily fall to the 2,000 to the dollar by the end of the year. It is going to take some time for the international debt market to restructure and global demand for things that Korea makes to pick up.
just my opinion...take it for what it is worth. |
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bassexpander
Joined: 13 Sep 2007
Location: Someplace you'd rather be.
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| Posted: Thu Oct 16, 2008 7:46 am Post subject: |
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| So you think I should wait longer to transfer dollars into won? I have to do this within the next month or so, as I am putting down a deposit on an apartment (rent). |
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Paddycakes
Joined: 05 May 2003
Location: Seoul
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| Posted: Thu Oct 16, 2008 8:01 am Post subject: |
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Bass,
Asking Dave's posters for financial advice? <cough> <cough> <gag> <gag>
Don't worry I'm guilty too. |
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harryh
Joined: 16 Jan 2003
Location: south of Seoul
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| Posted: Thu Oct 16, 2008 8:12 am Post subject: |
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| bassexpander wrote: |
| So you think I should wait longer to transfer dollars into won? I have to do this within the next month or so, as I am putting down a deposit on an apartment (rent). |
I'm in a similar boat to you, but looking to put down a deposit in December.
I've been getting money sent over to Korea over the last couple of weeks in small increments, and making a profit anyway on currency exchange (money I've sent back over the last couple of years).
Because things seem so volatile at the mo, I'm spreading my money. I'm keeping some cash in a high interest account back home, bringing money here (at profit), putting my salary in a CMA account here.
I've bought $5000 worth of shares in quite big companies which 'produce/manufacture/sell etc' products, hoping to get a return over 5/10 years. I've steered clear of banks, insurance, life insurance etc. I'm prepared to lose the $5000 if need be, but hope I've been wise  . |
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Big Pun Lives
Joined: 12 Oct 2008
Location: Seoul, South Korea
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| Posted: Thu Oct 16, 2008 8:25 am Post subject: |
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| bassexpander wrote: |
| So you think I should wait longer to transfer dollars into won? I have to do this within the next month or so, as I am putting down a deposit on an apartment (rent). |
Man, it is a tough one - I really wish I could pick up the magic 8 Ball and give it a shake and tell me and everyone what to do...
In your case, mitigate your risk for exposure and hedge - I would try to spread it out over a few transactions if possible by the end of Nov. I don't know what your financial institution would charge per transaction (keep that a factor in cost as well), but many of the signs point to instability in the markets, how the rest of the world reacting to the US Presidential election will have a HUGE impact on where the markets will go in the short run (your time frame of end Nov). Plus early signs of how the bailout package is going will start to show, how that does...
Long term, I would say wait and hold dollars if you are going to be here - but short run anything can happen - The key is make a decision, and look on the bright side of "Hey, I just freed up X% in opportunity cost (the change in the rate of exchange when you acquired the dollars to what the rate is currently) in opportunity cost", *assuming you had a favorable change in the exchange rate. ROE is money on the table, don't overlook that and get greedy.
Like I said, just my opinion, take it for what it's worth - read what you can, make the best decision that will enable you to sleep at night (seriously, I know people who are insomniacs worrying about their portfolios, PRE crisis, so I can only imagine what they are like now) |
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CP
Joined: 18 Jan 2007
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| Posted: Thu Oct 16, 2008 8:55 am Post subject: It's only money |
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| Relax - you make enough here to live comfortably. Don't worry about things you can't control. Even when exchange rates get bad so what. It's life. You can't stress about this. |
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bassexpander
Joined: 13 Sep 2007
Location: Someplace you'd rather be.
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| Posted: Thu Oct 16, 2008 3:31 pm Post subject: Re: It's only money |
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| CP wrote: |
| Relax - you make enough here to live comfortably. Don't worry about things you can't control. Even when exchange rates get bad so what. It's life. You can't stress about this. |
It's not about relaxing. It's about taking advantage of the situation and making money. |
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Big Pun Lives
Joined: 12 Oct 2008
Location: Seoul, South Korea
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| Posted: Thu Oct 16, 2008 3:57 pm Post subject: |
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Well, it is Friday morning, and the US Markets had a late rally...this might help the won a little. But there are some real fundamental problems...(see link)
http://www.ft.com/cms/s/0/0b4193ec-9b54-11dd-ae76-000077b07658.html
I found that article interesting. Some of the Ghosts from 97 can't be shaken, perception is very important right now, and having 7 Banks credit rating downgrated and record deficits are not helping the perception of the Korean economy and equities market.
this was really interesting...Straight from the Horses mouth
Jun Kwang-woo, head of the Financial Services Commission, told parliament.
financial markets would remain under pressure until the middle of next year as domestic banks faced increasing difficulties borrowing overseas. �Problems with foreign currency liquidity have been worsening. The current situation will go on for a while and will continue at least through the first half of next year,� he said. |
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bassexpander
Joined: 13 Sep 2007
Location: Someplace you'd rather be.
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| Posted: Thu Oct 16, 2008 5:27 pm Post subject: |
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And the see-saw continues:
http://english.yonhapnews.co.kr/business/2008/10/17/21/0502000000AEN20081017001700320F.HTML
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BOK to change rules on FX swap market to boost liquidity
SEOUL, Oct. 17 (Yonhap) -- South Korea's central bank said Friday it plans to revise currency swap market regulations to allow local banks to more easily secure dollar liquidity.
Under the new rules, the Bank of Korea (BOK) will trade directly with banks in competitive biddings in the won-dollar swap market. Currently, the central bank must first trade with intermediary banks, which then transact with local lenders.
"This new trading system is expected to help ease recent market jitters in the foreign currency market," the BOK said in a statement. The first bidding will be held on Tuesday, it said.
The won has dropped roughly 30 percent against the U.S. dollar so far this year as overseas investors have continued to pull money out of local stocks, causing Korean financial institutions to suffer a dollar shortage.
The central bank has pledged to continue providing U.S. dollars to the local swap market until it stabilizes.
The local currency was trading at 1,320.75 won to the dollar as of 9:21 a.m., up 52.25 won from the previous session's close.
[email protected] |
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marlow
Joined: 06 Feb 2005
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| Posted: Thu Oct 16, 2008 5:30 pm Post subject: |
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| jvalmer wrote: |
| marlow wrote: |
This country no longer has a real currency as far as I'm concerned. A normal currency doesn't slump 6% each of three consecutive days like it did last week, dramatically recover, and then drop like 8-10% in a day like it's doing today, especially when the yen is only down like 0.1% and the HKD is basically unchanged.
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HKD is pegged to the USD and trades within a small band. This is done due to Hong Kong's Black Sunday in 1983, and to prevent being used as a proxy for speculation on the renminbi. That is why the HKD is unchanged. |
That's good to know. However, it doesn't explain the lack of 10% drops in currency by all the other Asia Pacific countries yesterday. Whatever the problems Korea is having rolling over short-term debt, I'm sure it all originated with greed. The "service" attitude is pervasive here. Whatever Koreans get, they always want a little more. |
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