Financial Market Instability in Emerging Economies Posing Severe Concerns

Concerns are rising over the possible negative impact caused by the Fed’s tapering of the quantitative easing policy and its repercussions in emerging markets such as Argentina and Turkey striking a blow to the Korean stock market. 

“The instability in the emerging markets could affect the situations of both emerging and advanced economies at the same time,” said Choo Kyeong-ho, Deputy Minister of Strategy and Finance, adding, “The government will minimize the possible impacts by means of proactive countermeasures while improving the debt structure with a long-term perspective.”

According to the government, the current economic situations in Argentina and Turkey are rather unlikely to have a direct impact on Korea. They have almost no investment relations with Korea and Korea’s imports from and exports to these regions account for less than 1% of its total trade volume. 

Still, the possibility cannot be neglected that the uncertainties could spread to other emerging or advanced economies and then land on Korea’s doorstep. On the real economy side, the instability could affect Latin America and the Middle East as a whole, which may have some impact on Korea’s major export destinations like the United States and Europe. 

In the meantime, some experts point out that the current situation can result in a positive effect of slowing down the weak yen. This is because the increasing preference for safety assets is likely to lead to a stronger yen and weaker won. According to them, the tapering presumes a recovery of the US economy and thus can be a boon to the real economy of Korea if the instability can be properly kept in check.