Seoul shares were headed on Thursday for their biggest drop since June 2000 and worsening a market correction as exporters such as Samsung Electronics and financials were routed by worries about global credit.
The falls were made more severe as financial markets were closed on Wednesday for a public holiday, missing part of a slump in Wall Street amid fears a U.S. mortgage sector crisis could
affect the wider credit markets and crimp economic growth.
Selling was broad, with only 23 shares gaining compared to 769 that turned into the red.
A drop in futures prices caused the Korea Exchange to suspend program selling orders for five minutes. The rule is triggered when future prices move more than five% for at least one minute.
Program trades are automatically done by computers according to predetermined criteria, including the difference between future prices and underlying shares.
"My advice is to increase your cash positions. The subprime problems could take years to be sorted out. The markets are likely to take some time to recover following the sharp drop we
are seeing. There's not going to be a V-shaped recovery," said Kim Hyun-tae, a fund manager at Landmark Investment Management.
The benchmark Korea Composite Stock Price Index (KOSPI) is headed for its biggest drop since June 2000 in percentage terms, while it is in the midst of setting a record in terms of points, a Korea Exchange spokesman said.
Since hitting a record 2,015.48 points on July 26, the KOSPI has now dropped 16%, wiping out 129.9 trillion won (US$139.4 billion) in market value, though the main index is still up 18.5% for the year.
Among the biggest near-term risks to Seoul markets would be widespread redemptions of mutual funds by retail investors, given that the KOSPI's rally had been directly fuelled by a surge in indirect stock investments.
Fund managers said there did not appear to be wide scale redemptions, but noted money coming in had slowed down.
"People seem to be waiting and seeing for now. The problem would be if markets continue to drop and they decide to close their funds. That would make the selling even worse," said Kim.
Financials, Exporters Hit
Financials were among the biggest fallers in the benchmark index amid worries the sector would be especially affected by harder-to-obtain credit and worries the drop in markets would
discourage stock investments.
Kookmin Bank, the country's biggest lender, dropped over 3%, while Daewoo Securities slumped almost 8%. Exporters slid amid worries about the wider impact on global economic growth, with chip maker Samsung Electronics down almost 5%. Outperformers this year were also hit, with shipbuilder Hyundai Heavy Industries tumbling almost 9%.