Foreign investors offload stocks against bargain-hunting from institutional investors
By Park Hyong-ki
The escalating tension on the Korean Peninsula amid fiery rhetoric between the United States and North Korean leaders will leave the Seoul stock market volatile for a while, but its impact will be short-lived, analysts said Thursday.
The stock market saw heavy sell-offs from foreign investors but closed way off its daily lows on late bargain-hunting support from institutional investors, dealers said.
The benchmark KOSPI plunged to below 2,330 points at one point during the session, but recovered most of the losses toward the close and ended down 0.38 percent or 8.92 points at 2,359.47.
"Whenever there is a rumor of a crisis here, data shows that it usually takes three days to settle down. Based on this, we will see if the data will hold true again tomorrow," said Kim Doo-un, an analyst at Hana Financial Investment.
The geopolitical conflict has arisen, but given the limited effect on the stock market, it may not reach the broader economy, Kim said.
"When considering stock options expirations, the tension did not affect the market as much as the currency market," he said.
The local currency weakened against the greenback, closing at 1,142.0 won per dollar compared with 1,135.2 won the previous day.
The country's credit default swap (CDS) premium, measuring a nation's credit risks, reached a 14-month high of nearly 63 basis points. Korea is the only country that saw its CDS premium increase in Asia amid the tension, which is an anomaly because in the past other parts of Asia were also affected.
This could mean that the conflict is not so much of a threat to the region's security and economy.
Also, the U.S. Republican Party has always maintained a hard-line stance against North Korea. President Donald Trump's rhetoric, albeit harsher than his predecessor Barack Obama, is on a par with George W. Bush.
"The Republican Party's policy on North Korea has not changed. Korea and the rest of the world have not yet fully adapted to it because we were used to the policy of Obama and the U.S. Democratic Party over the past decade," Kim said.
Political analysts say that the conflict poses a risk with both sides continuing to face limited options to de-escalate the situation.
"The continuing U.S. demand for North Korean denuclearization as a precondition for talks narrows the diplomatic and other non-military options available to the alliance," said Alison Evans, the Asia country risk analyst for IHS Markit.
The market here is expected to see some volatility going forward, even after the August crisis rumor dies down.
The U.S. Federal Reserve of Kansas City will be hosting the Jackson Hole economic symposium later this month where American and European monetary policymakers will likely signal their future interest rate policies and asset unwinding.
Then, there is the Fed meeting next month.
Even though a U.S. rate hike is more likely in December, the Fed could unveil steps to sell the bonds it purchased in the wake of the 2008 financial crisis amid an upbeat economic outlook.
"A series of such events are expected to weaken Seoul stocks," said Kwak Hyun-soo, an analyst at Shinhan Investment.
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