Emerging markets ushered in a difficult time, and South Korea "combined punches" to rescue the market in order to ease the volatility of corporate bonds and stock markets.
The Financial Services Commission of South Korea said on September 28 that in order to stabilize the financial market, it will prepare to restart the stock stabilization fund.
On the other hand, Dow Jones market data showed that as of last week, outflows from emerging market-related ETFs traded in the United States reached $640 million, the largest weekly net outflow since April 2020.
"Since July, investors have turned to high-quality stocks and high-dividend strategies. Investing in dividend ETFs has been the main trend so far this year, with about $7 billion inflows into the class," said Thomas Taw, head of investment strategy for Asia Pacific at iShares. Marketers are looking for assets that can withstand inflation risk and pass on rising input costs to end consumers.
South Korea comes to the rescue
According to CCTV news reports, the Korean Financial Services Commission said on September 28 that in order to stabilize the financial market, it will prepare to restart the stock stabilization fund.
The Financial Services Commission of Korea and the Financial Supervisory Service held a joint financial market inspection meeting on the same day, re-examined the current situation of financial markets such as the stock market, and said that measures to mitigate financial market volatility such as the reactivation of the stock stabilization fund will be taken in a timely manner.
It is understood that the Financial Services Commission has conducted pragmatic consultations with securities-related agencies and other investment agencies on the reactivation of the stock stabilization fund.
The stock stabilization fund is a fund jointly prepared by securities companies, banks and other financial companies and related institutions to stabilize the stock market.
In March 2020, South Korea's stock market tumbled, and the country's financial sector raised a stock stabilization fund of more than 10 trillion won, but the fund was not used as the stock market gradually stabilized.
South Korea's financial markets have been volatile amid concerns about the Federal Reserve's tightening of monetary policy and an economic slowdown.
Since the beginning of this year, the Korea Composite Index has fallen from 2977 points all the way to 2169 points as of today's close, down more than 27%.
From the recent intraday high on June 25, 2021, the Korea Composite Index has fallen by more than 34%.
In addition, in order to stabilize the stock market, South Korea is studying a plan to ban short selling.
At the same time, South Korea's Ministry of Finance will urgently repurchase 2 trillion won of bonds on September 30.
South Korea's Ministry of Finance said it will actively consider taking measures to ease the volatility of corporate bonds and stock markets.
On September 25, South Korean Deputy Prime Minister and Minister of Planning and Finance Qiu Qingho said that South Korea is ready to take "several" measures to stabilize the financial market.
"(We) have taken measures and are preparing several other measures to stabilize the market, which has seen unilateral fluctuations in which the Korean won depreciates faster than other currencies," Choo Kyung-ho said in an interview with the media.
Large-scale net outflow of funds from emerging markets
Against the backdrop of a strong dollar, emerging markets are experiencing a massive net outflow of funds.
Investors pulled $260 million from emerging-markets ETFs on Monday, with the net asset value of one of the most popular ETFs, BlackRock's iShares Core MSCI Emerging Market ETFs falling below $60 billion for the first time since late 2020, FactSet data showed.
According to Dow Jones market data, as of last week, outflows from emerging market-related ETFs traded in the United States reached $640 million, the largest weekly net outflow since April 2020.
The Fed's hint of further massive interest rate hikes, coupled with a historic fall in the pound and geopolitical risks, has added to uncertainty in the global economy and hit emerging markets.
"The fate of emerging markets still largely depends on what the Fed does," said Manik Narain, head of emerging markets strategy at UBS.
Belinda, head of Active Investment Strategy, BlackRock Asia Pacific, also believes that the current policy normalization and the development trend of tightening through shrinking balance sheets suggest that market volatility may remain for some time, while the gap in risk premiums will likely continue to expand.
Therefore, investors need to be cautious when allocating assets, whether between different asset classes or within the same asset class.
For global equity investment markets, Stephen Andrews, co-head of BlackRock's global emerging markets equities team, sees great challenges this year, including nearly all markets in the Asia-Pacific region.
Andrews said global interest rates and corporate profit margins were moving very differently amid the need to tighten global liquidity to counter the inflationary effects of loose monetary policy over the past few years.
While inflation rates in many emerging markets remain within the long-term expected range, they are now close to the ceiling.
As a result, Andrews expects the impact of over-issued currency will take more time to correct, and one risk for emerging markets is getting caught up in the impact of a global repricing.
This risk increases in the event of a possible recession.
"We think the Chinese stock market will eventually rebound, and the key is when it will happen the fastest." Andrews said that some cyclical sectors are showing some value on the basis of "normalization", but their short-term performance may be lower.