SEOUL, March 10 (Korea Bizwire) — South Korea’s financial authorities said Tuesday they will tighten regulations on stock short selling as part of market stabilization measures amid increased fluctuations sparked by the outbreak of the new coronavirus and a slide in global oil prices.
Finance Minister Hong Nam-ki said the government will temporarily ease its requirements for the designation of certain shares subject to a possible ban on short selling.
The decision came in a meeting of economy-related ministers and officials held in Seoul.
Under the temporary step, effective starting Wednesday, the authorities will be able to designate shares subject to a possible ban under eased requirements for the next three months.
When a firm is named risky or overheated due to short selling, short selling of its stocks will be banned for 10 trading sessions, the Financial Services Commission said shortly after the local stock market closed.
“(The government) will swiftly and boldly take additional market stabilization measures if necessary,” Vice Finance Minister Kim Yong-beom told reporters.
The move follows heavy losses in the local stock market, believed to have been caused partly by massive short-selling by foreigners and institutions that apparently expect additional drops in local stock prices.
The benchmark Korea Composite Stock Price Index (KOSPI) plunged more than 4 percent Monday to close at a six-month low of 1,954.77.
Foreign investors sold a net 1.3 trillion won (US$1.1 billion) on Monday alone, the highest amount since the Seoul bourse operator began tracking such data in 1999.
U.S. stock market also crashed, with the Dow Jones industrial average plummeting 7.79 percent Monday (local time) in the face of the spread of the coronavirus and a sharp decline in oil prices.
Kim partly blamed the new coronavirus for fluctuations in global markets.
“The fast spread of COVID-19 and its unpredictability are factors that boost uncertainties in global markets,” the vice minister said.
“The volatility in the global financial market is expected to continue for some time depending on how the current situation unfolds in the future,” he added.
South Korea has reported over 7,400 cases of the novel coronavirus since confirming its first case Jan. 20.
The virus currently carries a relatively low fatality rate of about 0.7 percent in South Korea, but its high infection rate is forcing the people to stay home, causing serious problems for the local economy such as reduced spending that in turn will inevitably lead to loss of jobs.
Bank of Korea (BOK) Gov. Lee Ju-yeol also vowed active efforts Tuesday to help stabilize the local market.
“Risks to the financial stability are expanding on increased fluctuations in the local financial and foreign exchange markets due to the spread of COVID-19,” the top central banker noted in an emergency meeting held at the central bank in Seoul.
“(The BOK) will seek to stabilize the financial market by actively using all its available policy measures,” he told the meeting, according to the BOK.
Lee especially stressed the need to support small and medium-sized businesses that he said may face liquidity crunches should the conditions continue to worsen, the BOK said in a released statement.
He also instructed BOK officials to take steps to stabilize the foreign exchange market if necessary.
On Monday, the local currency closed at 1,204.20 won per U.S. dollar, plunging 11.9 won from the previous session’s close.
The won greatly advanced against the dollar Tuesday after the BOK and finance ministry both vowed to take market stabilization steps, closing at 1,193.20 won per dollar, up 11 won from Monday’s close.
The local stock market also rebounded from its six-week low by adding 8.16 points or 0.42 percent to close at 1,962.93.
Later speaking before the parliamentary finance committee, Hong said a negative impact from the virus outbreak will be inevitable.
“An impact on our economic growth from the outbreak of the new coronavirus will be unavoidable,” he said.
The BOK has already slashed its growth outlook for the local economy to 2.1 percent from the previous 2.3 percent.
Many others, however, paint a much gloomier picture for Asia’s fourth-largest economy.
Global credit ratings agency S&P Global Ratings has cut its 2020 growth projection for South Korea to 1.1 percent in two downward revisions in less than a month.
Moody’s too has lowered its own outlook to 1.4 percent from 1.9 percent forecast last month, which marked a downward revision from the 2.1 percent forecast earlier.
Seoul has proposed boosting its fiscal spending by an additional 11.7 trillion won to help offset the fallout from the virus outbreak.
A parliamentary think tank on Tuesday said the 11.7 trillion won in extra spending, if implemented in the first half, could boost the country’s economic growth by up to 0.16 percentage point this year and 0.21 percent in 2021.
The request for the extra budget is still pending at parliament.
Some lawmakers have suggested the need for a second supplementary budget.
The finance minister ruled out the possibility when asked by a parliamentary committee member, saying, “Now is not the time.”