Stock Market Jitters 

Stock Market Jitters

Like most other Asian markets. the local bourse suffered a sharp setback on Wednesday. falling to a six-month low. The 2.67 percent drop had widely been expected. as global markets plunged by 3 to 4 percent the previous session. while Seoul halted trading for Memorial Day. It is still alarming to see the price index helplessly collapse to under 1.300 just because the top U.S. central banker hinted at interest rate hikes. Despite the synchronization of global markets. the impact was too fast and too big.
Federal Reserve Board Chairman Ben Bernanke's shift of policy focus from growth to stability is understandable to prevent stagflation of the U.S. economy. As the phrase ``Bernanke shock' implies. the change was too abrupt. eroding market players' trust in the leadership of the Fed chief. who succeeded the fabulous Alan Greenspan four months ago. Korea is just one of the countries that has had to reconfirm the U.S. economic weight on global markets. But should this country have felt it so much more acutely than others?
Especially problematic was the nosedive of the technology-heavy Kosdaq. which sank twice as steeply as did the main exchange. Unlike the Korea Stock Exchange. the Kosdaq lacks such market-stabilizing devices as programmed trading and futures or derivative products. However. the Kosdaq's problem. is that of the entire stock market in that institutional investors are not properly performing their buffering role. Often. these institutions seek short-term gains more than the individuals do.
Two more factors add to the vulnerability of the domestic financial industry _ the government's inconsistent policies and some financial institutions' outdated. opaque business practices. A case in point is the recent massive imposition of penalties on some lending institutions. including Korea's largest lender. because of unfair interest charges. The Roh Moo-hyun government's economic policy in favor of redistribution over growth is also a damper on the overall economy and the financial markets.
Against this backdrop. the Bank of Korea raised its benchmark interest rate by 25 basis points to 4.25 percent. It would have been difficult to freeze the key money rate. considering the expected resumption of increases in the U.S. federal funds rate and the increasingly uniform interest trends worldwide. It was also a timely move to gradually eliminate bubbles from the domestic real estate market. The remaining task for the central bank and government is to fine-tune other macroeconomic policies to bolster the country's shaky recovery.
There is a clear limit to protecting the local bourse from global financial jitters. But individual investors need to judge the market more by the economy's fundamentals than sentimental whims. while institutions should faithfully play the role of cushioning overseas impacts. Although rectifying economic inequality is important. the government for its part ought to implement more market-friendly policies so that the latter can behave in a more rational manner.





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