August 5, 2019 / 7:41 AM / 10 months ago

S.Korea stocks slump over 2% on escalating tension with Japan, trade worries

    * KOSPI index closes at lowest since June 2016
    * Korean won posts steepest pct loss since Aug 2016
    * South Korea benchmark bond yield falls to all-time low
    * For the midday report, please click             

 (Updates to market close)
    By Hayoung Choi
    SEOUL, Aug 5 (Reuters) - South Korean shares tumbled more
than 2% 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% at 1,946.98, marking its sharpest
daily percentage loss since May 9. 
    Tech giant Samsung Electronics             fell 2.2%,
extending losses from last week when it reported a plunge in
profit and warned Japanese curbs on the export of chip-making
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%.             
    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%," said Lee
Kyung-su, chief of Mertiz Securities research centre. 
    South Korea on Monday announced plans to invest about 7.8
trillion won ($6.44 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%.
    The KOSPI's pharmaceutical sub-index         was the biggest
percentage loser with a 8.8% 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 7 per dollar level for the first time in 11
    The won was quoted at 1,215.3 per dollar on the onshore
settlement platform           , 1.42% 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
    Foreigners were net sellers of 317.6 billion won ($261.35
million) 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% so far this year, and lost
6.0% in the previous 30 trading sessions.
    The won has lost 8.2% against the U.S dollar so far this
    In money and debt markets, September futures on three-year
treasury bonds         rose 0.29 points to 111.26, while the
3-month Certificate of Deposit rate was quoted at 1.50%.
    The most liquid 3-year Korean treasury bond yield fell by
7.5 basis points to 1.186%, while the benchmark 10-year yield
            fell by 9.6 basis points to all-time low of 1.256%.

($1 = 1,215.2500 won)    

 (Reporting by Hayoung Choi; Editing by Shounak Dasgupta & Kim
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