Watchdog expects limited impact from Europe debt crisis

SEOUL, July 13 (Yonhap) -- South Korea's financial watchdog said Wednesday the ongoing financial crises in European countries are likely to have a limited impact on the local financial market due to local firms' small exposure to them.
The Greek debt crisis and fears of contagion to other European countries have spurred massive sell-offs in the local stock market and pummeled the Korean won's value. On Tuesday, the main stock index plunged 2.2 percent, and the won-U.S. dollar exchange rate sank by 8.7 won.
"Considering South Korea's exposure to so-called PIIGS nations and the size of their holdings of local shares, the direct impact of their crises on the local stock market is likely to be limited," the Financial Services Commission (FSC) said in a statement.
PIIGS refers to the five countries of Portugal, Ireland, Italy, Greece and Spain.
As of end-March, local financial companies' exposure to the five countries accounted for 4.4 percent of their total overseas exposure. As of end-June, the amount of local shares held by investors from the five countries claimed 3.6 percent of total foreign stock investment.
The FSC, however, noted the contagion of the crisis to major European economies, such as Britain, France and Germany, could lead to a possible global credit crunch, which is likely to have a negative impact on the local financial market.
The end of the U.S. quantitative easing and slowing growth in China and Japan could further deteriorate the local financial market's volatility, the FSC said, adding it will step up monitoring of European capital flows in and out of South Korea.
mil@yna.co.kr