Markets slump after nuke test; future uncertain

North Korea’s claim that it detonated its first nuclear bomb dealt a blow to South Korea’s financial market yesterday, and economic experts here voiced concern that the nearly unprecedented magnitude of the test makes it difficult to predict future market activity.
The main Kospi index experienced its biggest slump since June 13, with 20 stocks falling for each one that rose. The tech-laced junior Kosdaq market also lost heavily, prompting the stock market operator to freeze all program sales and purchases on the Kosdaq for five minutes, as the futures index of 30 blue chip shares fell more than 6 percent in the afternoon compared to the previous trading day.
Some experts contend, however, that a big market shakeup would not last long given the local market’s performance in the past when major security disputes with North Korea emerged. North Korea has stirred the international community six times since 2000 with its nuclear program ambitions, but Seoul stock markets have not experienced any long-term collapse of more than a week, except for once. In January of 2003, Seoul stock markets in general dropped by 15 percent after North Korea withdrew from the Nuclear Non-Proliferation Treaty.
But given the North’s trademark unpredictability, the international community’s reaction to the crisis will be a major influence on the response of the Seoul markets, experts said.
“Short-term negative impact on the market is inevitable,” said Lee Young-won, analyst at Prudential Investment & Securities Co. “But the market may further stumble if the United States takes a hard-line stance on the crisis.”
Kim Jung-hyun, analyst at Goodmorning Shinhan Securities Co., said the benchmark stock index is likely to hit a bottom at the 1,250 mark if the crisis is resolved through peaceful measures.
“The stock market will have more breathing room if the international community unveils a somewhat moderate resolution through the UN Security Council,” he said. “But if the situation becomes more extreme, for instance through a military response, then it’s not time to worry about stock markets.”
Meanwhile, many government agencies, including the Bank of Korea, the Financial Supervisory Service and the Korea Exchange, were put on alert, forming emergency teams to monitor markets around the clock and come up with emergency plans.
“We will make more efforts to assuage concerns among foreign investors and international credit rating agencies by informing them of the Korean government’s responses to the crisis,” Korean Prime Minister Han Myeong-sook said.
International credit rating agencies such as Standard and Poor’s and Moody’s Investors Service said the North test is unlikely to prompt a downgrade of South Korea’s credit rating, according to Bloomberg News.
Meanwhile, experts predict the Korean won to continue weakening.

by Jung Ha-won, Yoo Jee-ho