Explosion of ship may not pummel the stock market

Many have feared that news of the sinking of a South Korean naval ship near the border with North Korea could drive local stocks lower.

It hasn’t happened, at least so far.

As the news broke out Friday night, local time, it hasn’t had time to make an impact on the Korean stock market.

But in the United States, there was a mixed performance - the Dow Jones industrial average rose slightly. The S&P 500 index moved little. And the Nasdaq composite index shed a few points.

Analysts say while the news of the ship’s sinking caused some selling shortly after it broke out, the effect was minimal as North Korea has yet to make an official announcement.

However, Korea’s 5-year credit default swaps rose 6.98 basis points, or 8.79 percent, to reach 86.42 basis points on Friday.

The index normally surges when a country’s risk of economic trouble rises. Prices for gold in the New York market also increased $11.30, or 1 percent, to settle at $1,105.40 per ounce.

An uptick in gold prices is also common when geopolitical risks increase.

While it remains to be seen how the news will factor in the Korean stock market when it opens today, analysts say its impact may not be huge - at least not immediately.

They say this is mainly because the cause of the sinking has not been determined yet, thus there’s not yet an obvious connection to the North Korean military.

“Even if North Korea is related, unless it leads to an all-out conflict, the effect on the stock market will be limited,” said Kang Hyeon-cheol, an analyst at Woori Investment and Securities.

By Kim Hyung-eun, Kim Young-hoon [hkim@joongang.co.kr]