South Korea looks at Deutsche bank trade in Hong Kong

The Pak Banker - - Company& -

SEOUL: South Korean reg­u­la­tors concerned about volatil­ity in their stock mar­ket are mak­ing a trip to Hong Kong for some an­swers.

South Korea's Fi­nan­cial Su­per­vi­sory Ser­vice will send a team of of­fi­cials to the Hong Kong branch of Deutsche Bank AG as part of an in­ves­ti­ga­tion into its in­volve­ment in the heavy sell­ing of Korean stocks last month, ac­cord­ing to Dow Jones Newswires.

The Korean reg­u­la­tor and the Korea Ex­change are in­ves­ti­gat­ing sell­ing that took place Nov. 11 when the Kospi Com­pos­ite In­dex fell sharply in the last half-hour of trade. The in­dex ended down 2.7% that day.

Deutsche Bank's Hong Kong of­fice is mum on the re­ported visit and in­ves­ti­ga­tion. Spokesman Michael West de­clined to com­ment.

It isn't clear ex­actly what's be­hind the in­ves­ti­ga­tion. But it does high­light the chal­lenges of in­vest­ing in South Korea, which some­times seems to act more like an emerg­ing mar­ket than the de­vel­oped mar­ket it wants to be.

This lat­est episode par­tially ex­plains why in­vestors have long given South Korean shares the cold shoul­der. Com­pany stocks in South Korea are val­ued well be­low com­pa­nies in other Asian ex­porter economies. The Korean mar­ket over­all trades at an av­er­age price-to-book­value of 1.5 times, ac­cord­ing to Citi In­vest­ment Re­search. Hong Kong and Singapore trade at 1.9 times book value and Tai­wan at 2 times. Thai­land trades at 2.3 times book and Malaysia at 2.4.

Some of the Korea dis­count comes from in­vestor fear of mil­i­tary and eco­nomic dis­rup­tion em­a­nat­ing from nu­clear-armed North Korea.

But there are also ba­sic mar­ket con­cerns about cor­po­rate gov­er­nance and what some might see as a heavy govern­ment hand over­see­ing mar­ket trans­ac­tions.

Here's the back­ground on the Deutsche Bank sit­u­a­tion. Ac­cord­ing to the FSS, the Korean reg­u­la­tor, net sell­ing by for­eign in­vestors on that day to­taled 1.31 tril­lion won (US$1.18 bil­lion), with Deutsche Bank's sales hit­ting 1.6 tril­lion won. To­tal sell­ing over­all was 3.613 tril­lion won.

There was an in­crease in com­puter-driven pro­gram sell­ing that day. Nov. 11 also hap­pened to be an op­tions ex­piry day, a phe­nom­e­non that adds to volatil­ity. On such days, op­tions traders en masse closed po­si­tions on their con­tracts tied to Korean stocks. Reg­u­la­tors say they will be watch­ing what hap­pens this com­ing Thurs­day, the next op­tions ex­piry day.

The in­ves­ti­ga­tors' visit to Deutsche seems to be just a part of South Korea's at­tack on mar­ket volatil­ity. South Korean of­fi­cials also said to­day they would boost su­per­vi­sion of the lo­cal de­riv­a­tives mar­ket and may limit in­vestors' hold­ing of stock­op­tions af­ter last month's sharp drop in the mar­ket. In­di­vid­ual in­vestors are able to hold 5,000 fu­tures con­tracts and in­sti­tu­tions 7,000 at the moment.

Korean of­fi­cials are also try­ing to keep down swings in the cur­rency mar­ket, in­sti­tut­ing cap­i­tal con­trols that tax for­eign in­vestors' trades in cer­tain do­mes­tic Korean as­sets. In Novem­ber, for in­stance, the coun­try un­veiled pro­pos­als to reim­pose taxes on pur­chases of lo­cal govern­ment bonds by for­eign­ers. -PB News

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.