Until now, Seoul was the last of the core Asian markets to correct.
It may be doing so now, and problems in some of the biggest savings
banks may be the catalyst. Korea has been a crowded market lately
with trades focusing on the role it is playing in the global
industrial recovery, but also a place where guys have been betting
on the short side. Now that the regulators have frozen the
activities of Busan Savings Bank and Daejeon Mutual Savings Bank
due to their failure to keep enough capital to meet requirements,
the cracks are showing. A few sessions back, the Kospi (
) fell 0.60% -- not a huge gap in itself, but this time, it was the
locals who were selling. This may be the correction for Korea.
Ultimately, that should be a good thing as part of the cleansing
process that has been going on in emerging markets over the last
six to eight weeks. In the short term, the
) could be volatile: It turns out that the banks were suffering as
their construction loan portfolios rotted. Shutting them down for
the next six months may not help with that situation, but the
regulators' plans to start an $18 billion rescue fund should help
Korea's other banks avoid similar problems down the road.