Seoul to brace market for North risks

The South Korean government said it will take a “strong measure” if the impact of North Korea risks expands on the local market.

“The government confirmed that the North Korea risks are yet having a limited impact on the local stock market, but it seems like it’s expanding in accordance with the increasing tension as the North raises the possibility of provocation,” said Choo Kyung-ho, first vice minister of strategy and finance, at an emergency meeting on the macro economy and finance yesterday morning.

The government is going to “take a strong measure” to stabilize the market if the North risks continue affecting the market, Choo said.

“The 3-year Treasury bond yields are showing a consistent flow with modest drops, and the CDS premium for Korea also dipped 1 basis point on Thursday,” Choo said. “There is no actual impact on exports and the real economy yet.”

However, unlike the vice minister’s remarks, growing fears about the North risks were clearly displayed on the main bourse of Seoul in the afternoon. The Kospi closed at 1,927.23 yesterday, 1.64 percent lower than Thursday, mainly due to an exodus of foreign investors.

Foreign investors sold 671.7 billion won worth of local shares yesterday, continuing the selling spree for two days in a row.

“In the past, North Korea risks affected the stock market only for one or two days, but they have become long-term threats on the market, giving a bigger psychological shock to investors,” said Yim Soo-kyun, an analyst at Samsung Securities.

The securities market plummeted to about 1,930 during the day at the news of the withdrawal of South Korean companies operating in the Kaesong Industrial Complex. The Kospi hovered above the 2,000 mark until late March, but it plunged abruptly to 1,959.5 on Thursday.

The local currency also fell against the U.S. dollar to 1,131.80 won. Lately, the won has been on a decline, despite eased worries about the euro zone crisis, due to the North risks.

However, the government said there is no difficulty or complaints reported by local exporters or foreign companies in doing their businesses in the country.

By Song Su-hyun [ssh@joongang.co.kr]