Korea seen decoupled from emerging markets

Korea seen decoupled from emerging markets

Financial markets in emerging economies with current account deficits such as India and Indonesia have been facing increased capital outflows driven by the US plan to soon end monetary stimulus.

These countries' stocks, bonds and currencies have weakened, and their sovereign risks, measured by credit default swap premiums, increased over the past two weeks.

However, such negative effects have not spilled over to Korea, further justifying market analysts' claims that Asia's fourth-largest economy is decoupling from emerging economies.

Korea's CDS premium has not changed much since early this month, with foreign institutional investors continuing to invest in domestic bonds.

Market analysts attributed the country's decoupling to its sound economic fundamentals on the back of a current account surplus.

Economies such as China, Taiwan and Russia, which also have current account surpluses, were also little affected by the currency woes, which could potentially erupt in India and Indonesia on a scale reminiscing the Asian financial crisis in the late 1990s.

However, analysts said it was too early to conclude that Korea would be safe from these external negative factors given that its exports to Southeast Asian countries increased over the years.

Although Korea's financial markets will not see as much volatility as those of emerging economies with relatively weaker fundamentals, the expected tapering of the US quantitative easing will increase capital outflow in the country.

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