Middle
East crisis hits Korean markets
Growing
unrest in the Middle East and soaring crude oil prices are casting clouds over
the Korean economy and placing the government and businesses on emergency
footing.
Construction and airline firms led a plunge in stocks in Seoul on Tuesday on
concerns that protracted protests in Libya and the region could deal a major
blow to Korean businesses there and Brent prices approached $107 in Asian
trade.
The KOSPI ended down 1.76 percent or 35.38 points at 1,969.92 points.
The local currency ended at 1,127.60 won to the dollar, down 9.5 won from
Monday’s close, as geopolitical risks revived investors’ appetite
for safe assets, dealers said.
Major Korean builders put their construction projects in Libya on hold amid a
bloody revolt against authoritarian rule by its leader Muammar Gaddafi.
Last year alone, Korea won nine contracts worth $2 billion in Libya, making it
one of the biggest foreign players outside of the oil market which produces
most of the country’s wealth.
A total of 24 Korean builders are working in Libya, hiring 22,000 employees
including 1,300 Koreans.
The
Korean government set up a 24-hour monitoring team on the unrest in the Middle
East and was advising its nationals in Libya to leave as soon as possible if
their business was not urgent
Korean builders won $47.25 billion of orders from the Middle East last year,
according to the Korea Trade Investment Promotion Agency.
The nation’s contractors may be awarded more than $70 billion worth of
overseas orders this year as higher oil prices and economic growth boosts
demand for more refineries and infrastructure projects, the land ministry said
on Dec. 30.
Libya is the third-biggest overseas construction market for Korean builders,
bringing nearly 300 orders worth $36 billion in the three decades, the
construction ministry in Seoul said.
Hyundai Engineering & Construction has the “most exposure” to
Libya among Korean builders at 7 percent of its order backlog in the third
quarter, comprising five power-related projects worth 2 trillion won ($1.8
billion), UBS said. Samsung Engineering Co. has the biggest exposure to the
Middle East/North Africa region at 79 percent of its third-quarter backlog, the
report said.
“Global financial markets sensitively responded to upheaval in Libya as
the turmoil is feared to jack up oil prices, hurting corporate earnings
momentum,” said Kim Hyoung Ryoul,
an analyst at NH Investment & Securities Co.
“Foreign investors’ sell-offs reflected their conservative views
about risky assets.”
Meanwhile, Finance companies have no exposure, including loans, to Libya, the
Financial Supervisory Service said.
The African country’s political instability would have little direct
impact on Korean finance companies’ credit adequacy, the regulator said.
Already rising oil prices, driven by the economic recovery and money printing
by the United States, are feared to pick up due to political upheaval in Libya,
a major oil producer, crimping the fragile global recovery and sparking
inflation risks.
The cost for Dubai crude oil, Korea’s benchmark, surpassed the $100 per
barrel mark for the first time in 30 months. Korea, the world’s
fifth-largest purchaser of crude oil, relies almost entirely on imports for its
oil needs.
Foreign investors unloaded a net 321.5 billion won worth of local stocks on the
main bourse.
Builders were sharply dented by prospects that prolongation of the turmoil
would sap their construction projects in the Middle East. Top builder Hyundai
Engineering & Construction slid 9.74 percent to 72,300 won and smaller
player Daewoo Engineering & Construction lost 6.78 percent to 11,000 won.
Airlines were under pressure on concerns that rising oil prices would raise
cost burdens for them. Top air carrier Korean Air dropped 10.13 percent to
62,100 won and Asiana Airlines tumbled 10.3 percent
to 10,450 won.
The
Source: The Korea Herald