U.S. credit concerns to have little impact on S. Korean financial market
US YTWHW 2011-04-19 18:53:43
Concerns over the potential U.S. credit rating cut will have little impact on the South Korean financial market, market watchers said Tuesday.
Standard & Poor's said in a report overnight that it will maintain its rating on the U.S. long-term debt at the highest AAA, but lowered the rating outlook to 'negative' from 'stable' for the first time.
"We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long- term budgetary challenges by 2013," the credit rating agency said.
Despite the S&P's warn over the U.S. credit rating cut, South Korean stocks trimmed earlier losses and treasury notes closed mixed after gaining in the early trading.
The South Korean won ended lower against the U.S. dollar, but analysts expected the local currency to keep its ascent versus the greenback in the long term.
The benchmark Korea Composite Stock Price Index (KOSPI) fell 15. 04 points, or 0.7 percent, to 2,122.68. The key index fell to 2, 111.6 at one time during the session, but pared its losses in the afternoon trading.
"Concerns over the potential U.S. rating cut damaged appetite for risky assets, but the news will end up a short-term event," Lee Kyung-soo, an analyst at Shinyoung Securities in Seoul, told Xinhua.
"Fiscal tightening will inevitably happen amid global economic recovery, and the S&P move may reflect a confidence in the U.S. recovery," Lee said.
"S&P downgraded the U.S. rating outlook on views that the world 's largest economy is in better conditions to weather its rating cut," Shim Jae-youb, an equity strategist at Shinhan Investment Corp., said in a daily report.
"S&P's move is equivalent to rating action for advanced economies, which may drive global funds to flow into the relatively attractive emerging Asia, including South Korea," Shim added.
South Korea's government debts closed mixed. Yields on the liquid three-year treasury notes added one basis point to 3.71 percent, but the benchmark five-year bond yields shed one basis point to 4.05 percent.
Treasury yields started lower on the S&P report and expanded its declines on the KOSPI's sharp drops in the morning session. The yields, however, were back up in the afternoon session hit by massive selling of local brokerage houses in the bond futures market.
Some experts expected the S&P move to trigger a flight to safety in the South Korean bond market seen in the U.S. stocks and bonds overnight, but it did not happen.
"As seen back in 1995 when credit rating agencies cut rating outlook on the U.S., it will likely have little impact on the global financial markets," Park Hyung-min, a fixed-income analyst at Dongyang Securities in Seoul, said by phone.
In November 1995, Fitch Ratings put U.S. debt on a 'negative ratings watch' and Moody's put some U.S. government bonds on review for a possible down in January 1996.
"S&P does not seem to downgrade the U.S. rating within two years. The local bond yields will likely stay range bound until next week when the U.S. Federal Reserve will hold a monetary policy meeting," Park said.
The South Korean won fell versus the dollar, but market experts forecast the local currency to keep appreciating in the long term. The local currency closed at 1,091.50 won against the greenback, down 3.10 won from Monday's close.
"South Korean won fell against the dollar today, reflecting discount factors of the nation's economy that are small and open. Foreigners' stock selling also drove the local currency lower versus the greenback," Sam Hong, a currency dealer at Shinhan Bank in Seoul, told Xinhua.
"The S&P move may lead the South Korean won to depreciate further per dollar in the short term, but the rating agency's credit action will prompt investors to rethink about the U.S. fundamentals, which will weaken the greenback in the long term," Hong said.
"The U.S. fiscal problems weakened appetite for risky assets, which rose sharply in the recent trading. Risk aversion was boosted by the European debt concerns, leading to stronger dollar, " Jeon Seung-ji, a research fellow at Samsung Futures in Seoul, said by phone.
"It remains to be seen whether the U.S. government may solve its fiscal problems, but the S&P move will put downward pressures on the greenback," Jeon added.
