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Kospi uncharacteristically spooked by tensions

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Aug 11,2017
Seoul’s main bourse has been rattled by the dire threats traded by Washington and Pyongyang - unlike recent provocations by North Korea, which were quickly shrugged off.

In fact, since U.S. President Donald J. Trump claimed Pyongyang will face “fire and fury” on Tuesday, the Kospi has been falling.

On Thursday, the benchmark Kospi closed at 2,359.47, down 8.92 points, or 0.38 percent, from the previous trading day. The index fell below the 2,360-level for the first time since June 21, when it reached 2,357.53.

The main index fell nearly 40 points over the past three trading days.

North Korea’s more detailed threat Thursday to fire four missiles into the waters around Guam added to the rising anxiety.

Foreign investors offloaded 285.8 billion won ($250.4 million) worth of shares on Thursday alone. On the Wednesday after Trump’s remark, foreign investors dumped 300 billion won worth.

Korea’s credit default swap premium has risen to its highest level in 14 months, 0.63 percent. In fact, Korea was the only country in Asia that saw its premium increase. The premium is used to evaluate a country’s sovereign risk.

It is not the first time the Kospi fluctuated after a North Korean threat, but many analysts expect the jitters to last longer since the tension between North and Washington continues to worsen.

“It appears that the current tension is not likely to be eased in a short period time when considering risks coming from the North Korea that have risen once again,” said Park Sang-hyun, an analyst at HI Investment & Securities. “I expect the foreigners will continue to offload and purchase based on how strongly the two countries react to each other.”

Kim Hyo-jin, an analyst at SK Securities, also expected that uncertainties in the local market will continue considering the complexity of the ongoing tension.

“It is hard to know for sure if Trump’s direct word choices and North’s warnings will actually lead to some kind of action at this point,” Kim said. “The risks related to North Korea are always hard to predict. In the past, the problem was normally limited to between South Korea and North Korea but that has changed to between North Korea and the United States.”

But not every analyst is so gloomy.

“Even though Trump has publicly sent a message in regards to North Korea more than 50 times since he was elected, some believes his recent word choices have toughened and led to foreign investors’ offloading sprees,” said Seo Sang-young, a strategist at Kiwoom Securities. “I don’t think they are selling due to rising geopolitical risks but they are doing so because of the slow growth of the companies listed on the stock markets. They have been buying significant amount of shares starting early this year and I think they are selling them now for profit-taking purpose as they see local companies’ growth will be slowed from now on.”

Seo argued that offloading by foreign investors is not likely to last for a long period of time and is temporary.

BY KIM YOUNG-NAM [kim.youngnam@joongang.co.kr]


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