Pyongyang Summit Premium on Economy Discounted
By Lee Hyo-sik
Staff Reporter
The upcoming inter-Korean summit is widely expected to ease geographical concerns surrounding the Korean Peninsula to some extent, but most analysts say it will neither have tangible effects on the Korean economy nor help upgrade its sovereign ratings.
They also say the summit will help improve the overall equity market sentiment in the short term but will unlikely provide a boost to market fundamentals amid a host of external negatives, including U.S. sub-prime loan defaults.
Frederic Neumann, chief Korea economist at HSBC, told The Korea Times that the proposed summit is likely to provide a further boost to consumer confidence in the country. ``However, it is unlikely to have any material effect on South Korea's economy. Over the years, the prominence of the issue has declined and the impact on South Korean economic development of the North Korean conflict has lessened.''
``Politically, the summit should provide a boost to President Roh, but given that his term expires at the beginning of next year, we do not look for significant economic policy initiatives to be launched in the wake of the meeting,'' Neumann also said.
It is also unlikely that the meeting will boost Korea's sovereign credit ratings, according to Standard & Poor's credit analyst Takahira Ogawa. Ogawa told The Korea Times that the gathering is an important political event for both North and South Korea as it could further reduce the tension between two Koreas, at least for near future.
``But the news of the summit talks is merely symbolic. S& P cannot upgrade South Korea's sovereign ratings without substantial progress of ongoing government's economic reform. Also, the news does not necessarily mean there would be tangible progress between the North-South relations,'' he said.
Ogawa also said that the global credit rating agency does not expect any significant and tangible agreement, which could dramatically reduce the geopolitical risk on the Korean Peninsula and the contingent cost of reunification.
Domestic economists also echoed such a sentiment. Dong Yong-sueng, a research fellow at the Samsung Economic Research Institute, said although the summit will likely create a more stable business environment here, it is unlikely to produce any concrete effect on the economy as the North's nuclear development issue has already been resolved and there are no particular political and military issues between the two Koreas.
``However, it will reinvigorate trade between the two Koreas and more South Korean companies will likely invest in the Gaesong Industrial Complex. Also, the summit could facilitate the provision of electricity and other energy aid to the communist country, as well as speed up the linkage of inter-Korean railways,'' Dong said.
Citigroup economist Oh Suk-tae agreed that the summit is mostly symbolic and won't have any significant impact on the South Korean economy. ``To achieve concerted results, not only the two Koreas but also the U.S. and China should meet and discuss pending issues on the Korean Peninsula, such as changing the armistice agreement to a peace treaty.''
Regarding the summit's impact on the local stock market, most analysts said market sentiment will likely pick up to some degree for a short period of time but the number of shares likely to benefit from the South-North Meeting is limited.
``The proposed meeting will not sway the course of the local stock market. But companies engaging in inter-Korean projects, such as Hyundai Asan and other Hyundai Group subsidiaries, could see share prices increase despite the recent market volatility,'' said Daishin Securities analyst Sung Jin-kyung.
He also noted that the upcoming summit is largely symbolic and it will not likely help the market better cope with risks of U.S. sub-prime loan defaults and other recent negative factors.