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Seoul: Stocks slump over 2% on escalating tension with Japan, trade worries


[SEOUL] South Korean shares tumbled more than 2 per cent on Monday to close at their lowest level since June 2016 amid a worsening diplomatic row with Japan. Escalating trade tensions between the United States and China, South Korea's largest export markets, added to the selling pressure.

The Seoul stock market's main Kospi index closed down 51.15 points or 2.56 per cent at 1,946.98, marking its sharpest daily percentage loss since May 9. Tech giant Samsung Electronics fell 2.2 per cent, extending losses from last week when it reported a plunge in profit and warned Japanese curbs on the export of chipmaking materials was blurring its outlook.

Japan said on Friday it would remove South Korea from a list of countries that enjoy minimum export restrictions from Aug 28, pushing the Kospi down nearly 1 per cent. Japan tightened controls in July on exports to South Korea, escalating a row over wartime forced labourers and sparking a boycott by South Korean consumers of Japanese products and services, from cars, beer and pens to tours.

"Japan's tighter export controls may dent South Korea's capital investment, exports and private consumption, which may lead to this year's growth rate being lower than 2 per cent," said Lee Kyung-su, chief of Mertiz Securities research centre.

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South Korea on Monday announced plans to invest about 7.8 trillion won (S$8.88 billion) in research and development for local materials, parts and equipment over the next seven years in an effort to cut reliance on Japanese imports. However, such measures are expected to take some time to kick in, according to analysts.

The junior Kosdaq extended its losses, triggering the bourse to suspend future linked trades for five minutes. It ended down 7.5 per cent. The Kospi's pharmaceutical sub-index was the biggest percentage loser with a 8.8 per cent drop on dampened sentiment across the sector after SillaJen's halted clinical tests. Trade worries and a sudden slide in China's yuan sent South Korea's won to as low as 1218.3 per dollar.

The yuan breached the seven per dollar level for the first time in 11 years. The won was quoted at 1,215.3 per dollar on the onshore settlement platform , 1.42 per cent lower than its previous close at 1,198.0, marking its sharpest daily percentage loss since August 2016. Amid greater appetite for safe-haven assets, the currency marked its lowest against the Japanese yen since July 2016.

Foreigners were net sellers of 317.6 billion won worth of shares on the main board on Monday. Individuals were net sellers of 441.7 billion won, with analysts seeing some forced liquidations. Amid the protracted trade war between the United States and China, The Kospi has fallen 4.61 per cent so far this year, and lost 6.0 per cent in the previous 30 trading sessions.

The won has lost 8.2 per cent against the US dollar so far this year. In money and debt markets, September futures on three-year treasury bonds rose 0.29 points to 111.26, while the three-month Certificate of Deposit rate was quoted at 1.50 per cent.

The most liquid three-year Korean treasury bond yield fell by 7.5 basis points to 1.186 per cent, while the benchmark 10-year yield fell by 9.6 basis points to all-time low of 1.256 per cent.