MERS and Yen to take greater toll on Korea

South Korea's central bank kept interest rates at record low of 1.5% but reduced the growth forecast amid economic slowdown.

Today, the Central Bank reduced forecast for second quarter to just 0.4% from 1% revised estimate in April.

This year South Korea suffered from an outbreak of MERS (Middle East Respiratory Syndrome) virus, which as of now infected 186 people and killed 35. This is the deadliest outbreak of MERS outside Saudi Arabia.

The sentimental impact has been very high, with tourists and foreign business officials cancelling their trips to the country this year. Moreover the spread has been pretty fast with first case reported on May 20th.

The country was originally expected to grow at 3.9% in 2015, however the central bank has already revised the number twice, which currently stands at 2.8%.

Last week, the government announced fiscal stimulus of KRW 22 trillion, which stands as 1.4% of GDP. However according to analysts this budget is unlikely to reverse the downfall in economic activities in near term.

Weaker yen against Korean Won is giving tough competition in terms of exports which dropped by another 1.8% in June from a year ago.

Korean benchmark stock index is up 0.75% today, trading at 246.8, however the index is down almost 10% since April.

In previous post (read "MERS to take long term toll on Korea and KOSPI") we had given a call to short KOSPI at 253 with stop around 273, it is advised to maintain the position.