It was a bad day for South Korea. The won plunged 10 per cent against the dollar on Thursday, its largest fall in nearly 11 years. Shares suffered to a similar degree as investors woke to the news that Standard & Poor’s had put seven of the country’s banks on negative watch. The cost of insuring the country’s debt against default shot up. Meanwhile, its recalcitrant northern neighbour threatened to sever all ties.

The global bogeymen of deleveraging and frozen credit markets are more fearsome in South Korea than most of Asia. The private sector is heavily indebted and the country’s banks depend on overseas wholesale markets for some 12 per cent of their funding. The current account, having moved back into deficit for the first time since the Asian financial crisis of 1997-98, is another red flag for investors. Since the start of the year foreigners have sold a net $24bn of Korean shares, helping drive the won down by a third against the dollar. Like other emerging market economies with current account deficits and short-term external debt, Korea will have difficulty rolling over its borrowings.