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| A currency trader watches monitors at the foreign exchange dealing room of the KEB Hana Bank headquarters in Seoul, Monday. / AP-Yonhap |
By Yoon Ja-young
Seoul stocks closed with little change, Monday, as bargain-hunting in reaction to steep falls following Britain's decision to leave the European Union (EU) last Friday wiped out earlier losses, according to dealers.
They said expectations of market-boosting steps to cushion the fallout of Brexit offset underlying concerns about growing uncertainties on global financial markets.
Analysts said any rebound will remain fragile as concerns about Brexit will weigh on investor sentiment, leaving the market volatile.
The KOSPI closed at 1,926.85, up 0.08 percent; after opening weaker, but succeeding in making a rebound later on purchases by institutional investors.
Asian stocks rebounded, with Japan's Nikkei rising over 2 percent and China's Shanghai index seeing over a 1 percent gain.
The tech-heavy Kosdaq also inched up, closing at 648.12, up 0.15 percent, recouping more than a 3 percent drop during the session.
Analysts said the market will remain volatile for the time being as one thing that is clear for now is that uncertainty will weigh on the market.
"Since last Friday, contingency plans for a Brexit are being disclosed one by one, including the Bank of England governor's remarks that he is ready to supply 250 billion pounds, and the ECB's readiness to supply liquidity using currency swaps," Hyundai Securities analyst Kwak Byung-ryul said.
"Through the EU summit and the EU Parliament meeting, uncertainties over Brexit will be clarified," he added.
He estimated 1,880 points to be the bottom for the KOSPI when considering the overreaction to political uncertainties.
Mirae Asset Daewoo suggested between 1,830 and 1,850.
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"Not only monetary policy but also stronger fiscal policy is expected for the short term. The possibility of a key rate hike by the United States has also grown slim. It isn't likely to be a financial crisis," it noted.
Hana Financial Investment, however, said in a report that the rally reflecting expectation on policies will be limited in both strength and sustainability.
"Brexit increases the possibility of economic stimulus measures, including global monetary easing. Even so, the global financial market can't be free from the turmoil of Brexit for the time being," it said in a report.
Analysts estimate that pressure for an additional plunge of stock indices remain.
"Though there will be an expectation for stronger global policy coordination, the KOSPI could fall as low as 1,850 points in the short term when considering the increasing volatility in the global foreign exchange market, the maturation of Southern European countries' bonds, and political events," Hana Financial Investment noted.
The Korean won closed at 1,182.3 won per dollar, losing 2.4 won from the previous day. Analysts expect the Korean currency to weaken further.
"While the likelihood has increased for the U.S. Fed to freeze the key rate in response to Brexit, the Bank of Korea has become more likely to cut its key rate. The gap will narrow between the policy rates of the two countries," said Lee Sang-jae, an economist at Eugene Securities.
"As domestic importers will continue suffering in the latter half of the year, the country's foreign exchange authorities will tolerate the slow weakening of the won, which will hover above 1,200 won per dollar," he added.
Some analysts estimate that the won/dollar rate might reach 1,300 won if the Chinese yuan remains weak.
They also note that gold will shine as a safety asset.
"Despite pressure to strengthen the dollar amid global uncertainties, gold prices could surpass $1,500 per ounce gaining 15 percent for the short-term due to low interest rates," according to Hana Financial Investment.
The Korea Exchange reported that gold closed at 50,200 won per gram, surpassing 50,000 won for the first time since it opened its gold trading market in March 2014.
