They’re worth 200 won less than they were four days ago, with the dollar-won exchange rate hitting 1,380 won, a 10-year high.
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Speaking of Banknotes
This entry was written by Robert Koehler, posted on October 8, 2008 at 12:43 pm, filed under Korean Economy. Bookmark the permalink. Follow any comments here with the RSS feed for this post.
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35 Comments
The Naver story has an ad for the Honda Civic. At 1380 won per dollar and 1300 won per 100 yen good luck affording one.
This storm has been brewing a while and
I don’t think it has hit yet.
I heard that too many banks were borrowing dollars to give loans in won (true?), but what other factors are there for this “storm”?
WOO-HOO!!!!!!!!!!!!!!!
user-81: there are many answers to your question. So far, though, there has been no ’storm’, there has just been retrenching, meaning that companies, investors and institutions just want to get their hands on cold hard cash and bring it home to their own bank accounts.
Partial answer: Korean stocks are part of every emerging market portfolio. Mutual fund and ETF managers around the world have 5% in Korea, 8% in Japan, 4% in Africa, 4% in Brazil, etc. Everyday investors in those funds have been cashing out, and so the fund managers have to sell shares to raise that cash. As they sell Korean shares, they get won, which they have to change to dollars, raising the demand for dollars here, and driving up the dollar price.
Many foreign institutional investors also hold Korean government and corporate bonds, which pay a few points more than US T-bills. In normal times, those bonds get rolled over at maturity. Now, foreigners want their principal back at maturity - again, to be repatriated in dollars.
A storm would be full-scale panic, market-crashing fire sale, get out at any price behavior. This would be a (more or less) global phenomenon, but Korea would be hit hard because it’s a small market. In a panic, everyone, including Korean investors, would want to get out of Korean stocks, since ultimately, Korea’s stock market is supported by the hugely indebted chaebol. Once cashed out, they would hasten to convert that won into USD, yen, gold, bottled water and bullets.
I second what “Linkd” wrote. My Russian friends have converted from Won to USD now and told me, with a wry grin, that if things got worse, they would invest in gold-plated AK-47s.
My biggest problem now is budgeting for air fare. The rate keeps changing and the price keeps going up! Air fare is my number one costing problem on certain projects.
Anyone noticed how the PARIS BAGUETTE
baguette has diminished in size?
It certainly won’t help our business.
The inflation from all of this is going to be a real burden for Koreans and those who live exclusively off the local economy.
Luckily for me and Lazy_Contractor, we won’t be having that problem.
WOO-HOO!!! indeed my good man.
The won has lost a large amount of value to the US dollar, and the Korean stock market is also way down, so it seems like a great time for someone with US dollars to invest in some good Korean export stocks. I wish I had bought dollars a year ago.
Yeah, US soldiers in Korea must be having a great time.
It almost doesn’t seem fair does it? The global crisis started in the US, yet it’s countries like Korea that takes the full biggest hit.
Today’s FT:
And then there’s this somewhat odd story:
And it just stops there. What signs?
@10,
Exactly one year ago it was the dollar that was tumbling in value, and the advice at the time was to get out at 900 won per dollar because it was probably going to go to 800 won per dollar.
I wish I had done the opposite of what others said and just bought up dollars. One would already have made their money and be in a prime position to take advantage of the current opportunity.
Exactly one year ago it was the dollar that was tumbling in value, and the advice at the time was to get out at 900 won per dollar because it was probably going to go to 800 won per dollar.
What would have happened if the Korean government had not tried to keep the KRW from getting too “strong” against the USD?
Will the coordinated decision by the Fed and the central banks of the E.U., U.K., Switzerland, Canada, and China to reduce lending rates by half-percent help with Korea’s part of this crisis?
http://www.nytimes.com/2008/10.....ref=slogin
It’s 1461 won/$ right now.
#12,
I know. In light of this, I really doubt the Americans companies that have caused this mess will change their ways. They got 700 billion dollars from the US government, which they’ll probably use to purchase cheap foreign stocks.
We must hope so. There is no clean and, shall we say, ‘ethical’ solution now, just a lot of bitter pills to swallow. Markets consist of buyers and sellers. If no one is willing to take one of those roles, then we’ve got serious problems.
The Dow fell off a cliff this month, prices of every type of stock in every type of industry dropping like a rock into a well. That means nobody wants to spend their money (USD) to buy stocks. The Korean won has lost 20% in just over a week. That means no one wants to sell USD, at virtually any price of won. If someone would come into these markets and spend some money to buy something, even if it’s cheap, it would make everyone feel a lot better.
It’s like some ajumma took her apples to Karak market and put out her sign saying 사과 1개 W1,000. And no one buys, although the market is full of people with money in their pockets. So she drops to 900, then 800 and so on until she’s like, “Fuck, this is ridiculous”, cuz she’s now got a sign saying “Apples for W300″, and still no one is buying. And there’s people standing there with money in their hands thinking “I know that apple is worth W1,000, even these days it should be worth W800″. If I bought it for W300 and took it to some local market I should make a huge margin.”
But they don’t buy, because they look around at everyone else who isn’t buying, and they think about their own businesses, and their own customers, and they think “I better keep my money in my pocket, cuz if my customers act like we are acting in this apple market, then I won’t be able to replace this cash.
#20,
Nobody is buying because apples are in season. You can get a box for 10 000 won.
But that “advice” was from some dumbfuck lawyer. What does he know about currency? Take your advice on laws from lawyers, all else from reputable sources. For example, I recommend the PLAYBOY Advisor for advice on the topics of wine, speaker cables, and female orgasm over the advice of any lawyer. Even me.
But those Korean residents who bought dollars in the 900-1000 range, and are now holding those dollars, could do well to bring them back at this time.
Good advice. This is not a ‘forever’ thing, but rather the local effect of the shock felt globally by the fallout in the US. Expect a rebound; more than likely, this will not be a long-term problem.
Good grief! Will they never learn?
Don’t take my word for it if you’re making investment decisions. Personally, I think it’s temporary, especially given the peculiar strength of yen to won, but again — I’m a lawyer, and we’re usually dopes when it comes to this stuff.
Ah, this is nice.
Coupla years ago, I put 10 million won into dollars when the rate was about 950, I think.
And now it’s time to switch all of those back into won. It’s free money! 5 million won of free money!
It’s a beautiful thing.
Brendon, I’m surprised: the mere fact that we’re of the same opinion here should not have led you to believe that I ‘took’ your advice. Good grief, indeed! For shame!
Even so-called financial experts seem to be dopes when it comes to this stuff, including American financial experts.
For the past couple of months, the Korean government has been trying to blame Korea’s economic problems on problems in the US and on the global economy, but if it is all America’s fault, then why has the value of the Korean currency fallen so much further than the value of other Asian currencies? Why has Korea’s global competitiveness ranking slipped from eleventh place to thirteenth?
Korea’s current finance minister (Kang Man-soo) is a dinosaur from a bygone era when the Korean government tried to micro-manage the Korean economy and when all were sacrificed for the benefit of exports. I think his recent suggestion that Korean banks sell their overseas assets to raise dollars is an example of how controlling, short-sighted, and simple-minded the man is. The sooner President Lee gets rid of him the better.
I think that Korea’s attempts to screw Lone Star and other foreign investors over the past few years have also contributed a great deal to Korea’s economic problems. I think the Korean government has lost the trust of not only foreign businesspeople but also Korean businesspeople. Who wants to invest in a place where government authorities sully your reputation and raid your offices based on unverified rumors and weak accusations in an attempt to either coerce you, deflect blame, or win political points? Who wants to invest in a country where authorities use “public sentiment” as a excuse to ignore rules and regulations? Who wants to invest in a country where investors are vilified for being too successful?
I have an MBA degree, but I am not a businessman and know very little about finance and economics, but I remember a Korean friend of mine, who was a classmate and got his MBA from the same school I did, telling me that the Seoul National and Yonsei University MBA graduates he worked with at GE Chemical in Korea were very weak in statistical analysis. He complained that they knew only the basic statistical methods and regularly applied them to problems that required other, more complex methods. When he tried to explain to them that they were using the wrong statistical methods in their forecasts and analysis and that the results would be flawed, they did not seem to understand what he was talking about and showed almost no williness to learn or correct their mistakes. He said they acted very smug about the fact that they had graduated from Seoul National and Yonsei, in spite of knowing very little about finance and statistics.
I do not know where Korea’s finance minister got his education, but wherever it was, that education is almost certainly outdated by now. The guy is too old and probably started closing his mind to new things years ago. President Lee needs to select a much younger finance minister who has graduated from a good business school in the US or Europe.
There may be some talented, dedicated professors in Korea’s elite business schools, but even if there are such people, I think the standards of Korea’s universies are so low and their cultures so unscholarly that even Korea’s elite universities are graduating only mediocre business people.
I do not understand why anyone would come to Korea to get an MBA.
shut up gerry no one cares what you think
but if it is all America’s fault, then why has the value of the Korean currency fallen so much further than the value of other Asian currencies?
I haven’t connected the dots yet, but I think the American crisis can be traced back to Korea. It’s all Korea’s fault somehow, and it’s getting the ass-whipping it deserves. It’s good that so many people on this board which is read by even the UN make sure that all the bad stuff about Korea gets out so the world can know what a lie Korea’s economy is. Keep up the good work!
yes, lets boycott Korea and not watch Kdrama’s.
First Korean blumpkins started the cold war, now they started the second great depression.
Buy a Civic!
WHY DON’T YOU?
Are you SO slavish to Korea even though it is destroying your new homeland and making bread queus in Manhattan?
I’m Not
My parents worked hard to give me the opportunities here in the States.
My Uncle fought in Vietnam in the US Marines and paid the ultimate sacrifice.
Did YOURS?
Now he is retired in Illinois.
Matthew 12:34 tells us how to live our lives in this situation.
I know I do Rightly, and have the Lord’s love as proof.
Kerplunk sees through this.
While the government decides how many billions to use to bail out Wachovia, 75 of it executives go on a Mediterranean cruise.
http://www.latimes.com/busines.....400.column
I say seize their houses, yachts and luxury cars.
And nationalize their daughters.
but if it is all America’s fault, then why has the value of the Korean currency fallen so much further than the value of other Asian currencies?
I think your criticism is misplaced. Japan’s Nikkei lost 24% of its value this week. Currencies and stocks are plummeting everywhere. Korea may have some of its own contributions to this problem, but this tsunami is radiating from New York City.
http://news.yahoo.com/s/nm/200.....Yst4Ks0NUE
I haven’t connected the dots yet, but I think the American crisis can be traced back to Korea. It’s all Korea’s fault somehow, and it’s getting the ass-whipping it deserves.
I think I have found the Korea connection. I keep hearing on the news that Lehman’s collapse was the spark that blew everything up. And it was Lehman’s that the Korea Development Bank was going to buy out but didn’t because they asked for too much money and Korean regulators didn’t like the idea. If KDB had bought out Lehman’s it would not have collapsed and there would have been no cascade of panic that has brought us to the collapse we see now.
At first this was just a theory but then I saw an article where the head of Korea’s SEC said he deliberately pulled the plug on the Lehman’s deal to avenge Korea’s humiliating bailout ten years ago. The article is here.
It would of been humiliating if they actually took the IMF package.
BTW the IMF package which was designed for Mexico was meant to heighten economic problems and increase foreign ownership.