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| A dealer passes by an electronic sign at KEB Hana Bank headquarters in Seoul, Thursday. The KOSPI closed down at 2,195.44 points on news of the collapse of the U.S.-North Korea summit. Yonhap |
By Park Hyong-ki
The Korean financial market is expected to experience high volatility for a while due to uncertainty created by the abrupt end of the summit between the United States and North Korea in Vietnam, analysts said Sunday.
The downbeat outlook came as the disappointing summit rattled the market, Feb. 28.
The benchmark KOSPI closed at 2,195.44 points, down 39.35, or 1.76 percent, Thursday, as shares in tourism, construction and railways fell more than 10 percent on a single day following the collapse of the talks.
About 130 stocks related to the highly promoted summit had been under the spotlight, according to the Korea Exchange.
But they crumpled, losing nearly 6 trillion won ($5.3 billion) in value, as soon as the news broke that U.S. President Donald Trump and North Korean leader Kim Jong-un had failed to reach a deal.
Analysts say it may take a while for those shares, and even the market to fully recover, given a number of factors that are undermining the economy.
These include the ongoing trade dispute between the U.S. and China, a down-cycle in semiconductors, and the manufacturing slowdown in China.
"I wouldn't say that the summit collapsed or failed, even though there was a certain degree of disparity between the two sides," said Kim doo-un, an economist at KB Securities.
"As Trump said he was not going to rush to make a deal with North Korea. It will take more than a couple of summits to ease nearly seven decades of hostility. The market responded to this compounded by uncertainties over Korean exports, chips and China's slowdown."
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Even though the unexpected "no deal" in Vietnam has increased anxieties over the future of the two Korea's economic relations, facing a standstill due to sanctions, Washington and Pyongyang could hold meetings to further sort out their differences, he added.
President Trump said he walked away from signing a potential agreement amicably with handshakes.
He told the press afterwards that he will not hold big military exercises with South Korea because they are not only "too expensive," but also to keep the relationship with North Korea going.
He also indicated that the trade talks with China could end up like the summit.
But a day after he made that remark, he said discussions were "moving along nicely," while demanding China remove tariffs on U.S. agriculture imports.
Analysts say President Moon Jae-in will face the biggest loss from the breakdown in Vietnam as his support rating will fall further due to the weaker economy and uncertainty over North Korea.
"Without progress on North Korea, Moon's domestic agenda becomes his only metric of success for voters, who have already criticized his administration for failing to deliver on economic metrics such as unemployment," said Alison Evans, deputy head of IHS Markit.
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