The South Korean government will step up real-time monitoring of financial markets as domestic stocks undergo a correction driven by external uncertainties. Officials pointed to expectations of rising U.S. Treasury yields, uncertainty over the artificial intelligence and semiconductor business cycle, and geopolitical tensions in the Middle East as factors fueling volatility.
Kwon Dae-young, first vice minister of the Ministry of Finance and Economy, convened a joint market review meeting with related agencies at the Government Complex Seoul on the morning of the 16th to discuss domestic and overseas financial market conditions and policy responses. Attendees included Heo Jang, second vice minister of the ministry, the senior deputy governor of the Bank of Korea, the senior deputy governor of the Financial Supervisory Service and the secretary general of the Financial Services Commission.
The government said equity markets at home and abroad are undergoing a correction, driven by expectations of higher global interest rates, uncertainty over investment and earnings outlooks in the AI chip sector, and risk-averse sentiment stemming from higher international oil prices. It assessed that Korean stocks have shown relatively greater volatility than other markets, partly because of differences in sector composition.
The KOSPI lost momentum from 7,004 points on the 2nd of this month and continued to decline, falling to 5,554 points on the 15th. The KOSPI 200 Volatility Index, or VKOSPI, a gauge of market volatility, rose to 48.5 on the 13th from 36.8 on the 8th and reached 55.4 on the 15th.
Still, the government stressed that fundamentals in the domestic economy and stock market remain solid. In its October outlook, the International Monetary Fund raised its forecast for South Korea's growth this year to 3.3% from 2.6% and its forecast for next year to 2.8% from 2.5%. A large current account surplus and expectations of improving corporate earnings also provide support, the government said. Operating profit at KOSPI-listed companies is estimated to expand to 969 trillion won based on this year's projections, from 312 trillion won in last year's results.
The government and related agencies will closely examine whether volatility spreads beyond the stock market into the bond, foreign exchange and short-term funding markets. Taking into account linkages and spillover effects across markets, they plan to review risk factors across the financial system in an integrated manner and strengthen real-time coordination among agencies.
Financial authorities will take the lead in responding firmly to market-disrupting activities. The government also plans to consistently pursue structural reform measures to curb volatility in the domestic capital market and enhance its growth potential, with the aim of improving market confidence and competitiveness.