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(News Focus) N.K. threats have little impact on S. Korean financial market
By Kang Yoon-seung
SEOUL, April 11 (Yonhap) -- Despite repeated war threats from North Korea, South Korea's financial markets have remained calm, due largely to better-than-expected economic indicators from advanced countries, local analysts said Thursday.

   The benchmark Korea Composite Stock Price Index (KOSPI) closed at 1935.58 on Wednesday, up 0.43 percent from 1,927.23 tallied on Friday, despite North Korea's threats to close down the joint inter-Korean industrial park earlier this month, which added to the rising tensions with the North.

   Tensions on the Korean Peninsula remain high after North Korea angrily responded to the latest United Nations' sanctions announced in March to punish the communist nation for conducting its third nuclear test in February.

  


Under the resolution, U.N. member states are required to inspect all of North Korea's maritime and air cargo "within or transitioning through their territory" if it is believed to contain illicit items.

   The military drills conducted by the United States and South Korea also deepened the geopolitical tensions. The U.S. air force's nuclear-capable B-2 stealth bombers carried out their first-ever bombing drill over the Korean Peninsula in March, sending another strong warning to North Korea.

   On March 27, North Korea severed the military hot line with the South -- used as a channel for cross-border travel -- which sparked concerns over the operation of the industrial complex in the North's border town of Kaesong.

   North Korea has been banning South Koreans from entering the industrial park since April 3, only allowing workers currently staying at the border town to return home.

   Accordingly, shares listed on the main bourse lost ground last month, closing at 2004.89 on March 29, falling from 2013.15 tallied on the first trading session of the month.

   However, the KOSPI market started to gather ground this week, curbing earlier concerns that the geopolitical risks will continue to weigh down on the local stock markets down the road.

   Analysts said the upward trend came as the protracted tensions had only a limited impact on the local stock market due to a better-than-expected economic data from abroad.

   "Concerns over a possible missile launch by North Korea already has been reflected on the market," said Kwak Joong-bo, an analyst at Samsung Securities Co. "The gains on U.S. shares also reflect abundant liquidity on the global market."

   Kim Ji-hyung, an analyst at Hanyang Securities Co., echoed the view, adding that North Korean risks can only have a limited impact on the local market down the road as such problems have been lasting for more than a month.

   "The tension on the Korean Peninsula has reached its peak," Kim said. "Since two Koreas are unlikely to go into a full-scale war, the risk is unlikely to expand any further on the stock market."

   Meanwhile, China's inflation data came as a positive lead for the export-reliant country's stock markets on Wednesday, overcoming heightening fears over North Korean threats. The KOSPI gained 0.77 percent during the trading session.

   The growth rate of China's consumer price index (CPI) in March came at 2.1 percent, falling sharply from the rate of 3.2 percent tallied a month earlier, according to the data released by the National Bureau of Statistics.

   Analysts said the lower-than-expected CPI growth gave China more leeway to release economic stimulus measures. China is the biggest trading partner of Asia's fourth-largest economy.

   South Korea's export volume reached US$555.2 billion in 2011, with China accounting for 24.2 percent of the total, more than two times the 10.1 percent share by the U.S.

   The U.S. Federal Reserve's announcement made on Monday to maintain its stimulus measures also added to the market gain, analysts added.

   Local analysts also said the government's envisioned economic stimulus measures, which include an extra budget, also sustained investors' sentiment on the stock market.

   The size of the extra budget is expected to range between 15 trillion (US$13.2 billion) and 20 trillion won, sources said. The government plans to finalize the supplementary budget this month, which would mark the first additional budget in four years.

   Analysts added that the risk stemming from North Korean threats is unlikely to have an adverse impact on the local stock market in the future, as it is not a decisive factor for South Korean shares.

   "It is true that unlike the past, North Korea's young leader Kim Jong-un's threats are lasting longer than his father Kim Jong-il," said Kang Hyun-gie, a researcher at I'M Investment & Securities Co.

   "However, North Korean threats have never had a long-term effect on the local stock market, which is rather linked to economic indicators from abroad," Kang said.

   "The previous losses on the main bourse also came from the weak yen, which dented earnings of local exporters, and not just because of North Korea," Kang added.

   A relatively stronger won inflicts foreign exchange losses on local exporters, making South Korean goods more expensive overseas and damaging firms that compete with Japanese firms.

   "Even if the near-war tension with North Korea is weakened, the volatility in the foreign exchange market may continue to weigh down on the local stock market due to losses from exporters," Kang added.

   Global investment banks also said the North Korean risk is anticipated to have only a limited impact on the local economy.

   UBS said the Asia's fourth-largest economy will remain intact from threats, as the provocations by North Korea are aimed at maintaining its regime, rather than instigating an actual war.

   South Korea's weak financial market conditions are attributable to its stagnant export and consumer sentiment, the Switzerland-based bank added.

   British bank HSBC also said South Korean economy is anticipated to climb 3.8 percent this year despite North Korean threats, on the back of its recovery in exports.

   colin@yna.co.kr
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