Launch has little impact on bourse
Korea’s financial market barely flinched after Pyongyang’s failed rocket launch yesterday morning.
The government, the Bank of Korea and the Financial Services Commission began emergency monitoring of the situation but said its effect on the market would be minimal.
The Kospi closed up 1.12 percent to surpass 2,000 points and the won strengthened against the dollar.
Korea’s central bank yesterday left the key interest rate unchanged for the 10th straight month in April, as lingering global economic uncertainties and weak pace of economic recovery challenge policymakers.
Bank of Korea (BOK) Governor Kim Choong-soo and his fellow policymakers froze the benchmark 7-day repo rate at 3.25 percent for this month, as widely expected.
Vice Minister of Strategy and Finance Shin Je-yoon held a director-level meeting at the Gwacheon government complex in Gyeonggi and discussed the launch’s impact and possible countermeasures to the threat of excessive volatility.
However, the government and the financial authorities said the risk associated with the launch had already been reflected in the market as the North announced its intentions in March. Moreover, South Korea’s financial market has experienced similar events in the past, which are believed to have watered down the effect of the latest launch.
“North Korea’s rocket launch was followed by a quick recovery in the market,” the Financial Services Commission said.
Korea’s credit default swap spread started trading at 120 basis points in Hong Kong yesterday, a decline from the closing spread of 125 basis points in New York on Thursday night, despite the missile launch.
The North launched the missile at 7:39 a.m. and the financial market reacted calmly. The Kospi started 0.76 percent higher at 2,001.71 points while the won strengthened by 6.60 won (0.5 cents) at the opening.
When the North had its first nuclear test on Oct. 9, 2006, the Kospi fell by 2.41 percent but recovered 0.68 percent the following day. Eight years earlier, the Kospi advanced 1.76 percent when the reclusive, communist state test-fired a long-range missile in 1998.
Moody’s Investors Service said on April 2 that South Korea’s geographical risk is at a “moderate level” and upgraded the outlook for Korea’s sovereign credit rating to “positive” from “stable,” citing “very strong and improving fiscal fundamentals.” The upgrade came despite the fact that the missile launch had already been scheduled. The rating remains at A1, the agency’s fifth-highest grade.
“North Korea’s rocket launch pushed down investor sentiment but after the launch, investors’ interest will focus on the country’s economic fundamentals and macroeconomic indexes,” Barclays said in a statement.
By Limb Jae-un [firstname.lastname@example.org]
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