NK risk rattles financial markets
The stock market tumbled Wednesday due to escalating risks caused by North Korea’s nuclear brinkmanship. The benchmark KOSPI lost 23.77 points or 1.20 percent to close at 1,959.45, its biggest daily fall this year. / Korea Times photo by Shim Hyun-chul
By Kim Tae-jong
The nation’s stock market tumbled Wednesday due to escalating geopolitical tension between the two Koreas, caused by North Korea’s nuclear brinkmanship.
The benchmark KOSPI plunged 23.77 points or 1.20 percent to close at 1,959.45, the biggest daily fall this year.
The local currency also lost ground against the U.S. dollar, ending at 1,123.80 won, down 6.30 won from Wednesday's close.
Analysts expect financial markets will remain volatile for a while as the current risk of conflict with North Korea is different from in the past, when they had short-lived and limited impacts on the financial market here.
Rising tension is currently prompting foreign investors to sell more Korean stocks, weakening the currency
“Basically, the situation is different from the past, as there have been risk factors coming out continuously,” said an analyst at Korea Investment & Securities. “The fluctuation in the stock market is expected to continue, as there is a slim chance for the risk factors to be removed quickly.”
He said the stock market was also affected by poor reports on hiring and service industries in the U.S., which also gave the Dow Jones industrial average its worst day in more than a month.
In the past, Korean financial markets barely reacted to North Korea’s threats, indicating investors’ indifference to such rhetoric, because Korean markets became less sensitive to North Korea-related issues.
In the past month, however, North Korea has continued to raise the level of its threats.
The communist country ratified a law this week authorizing plans for “counter-actions” against U.S. aggression, including a nuclear strike, using expressions such as a “state of war” to describe its current relationship with the South.
On Wednesday, it also abruptly imposed an entry ban on South Korean workers and cargo to the inter-Korean industrial park in Gaesong.
“In the past, they were all one-time threats,” said Kim Hak-kyun, an analyst at KDB Daewoo Securities. “So it would be a bad idea to buy stocks, expecting a quick recovery like in the past.”
Some argue the local stock market will not drastically fluctuate, as the tension is unlikely to develop into a military conflict between the two Koreas.
“Since there is a slim chance of a physical confrontation, it seems also important to pay attention to valuation and other economic conditions,” said Yoo Seung-min, an analyst at Samsung Securities.
The government will hold a meeting Friday morning in Seoul to gauge the impact of North Korea's ever-intensifying war threats on the country's economy and financial market, the finance ministry said Thursday.
The meeting will be attended by senior policymakers of the finance ministry, the Financial Services Commission, the Financial Supervisory Service and the Bank of Korea, according to the ministry.