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Financial markets brace for medium-term jitters

July 06,2017
Despite North Korea’s test of an intercontinental ballistic missile Tuesday, Seoul’s financial markets remained calm, as they did after previous provocations.

But the market were aware that Tuesday’s test was more significant than other missiles tests as Pyongyang gains the ability to threaten the U.S. directly - and the Donald Trump administration may be forced to respond.

According to the Ministry of Strategy and Finance on Wednesday, the government held an emergency meeting to assess the North Korean missile test’s impact on local financial markets.

The government came to the conclusion that the effect on the market was limited. Both the stock market and foreign exchange market were stable.

The stock market closed half a percent lower on Tuesday compared to the previous day.

On Wednesday, it recovered slightly, gaining 0.33 percent or 7.82 points to close at 2,388.34. Other global markets weren’t impacted by Pyongyang’s missile test, although the U.S. stock exchanges were closed for the U.S. Independence Day.

European markets dipped slightly, including the U.K., which lost 0.27 percent. France fell 0.4 percent and Germany inched down 0.31 percent.

Both the Nikkei and Shanghai exchanges gained roughly the same amount as Seoul’s.

The credit default swap premium, which is used as a crisis barometer, gained 2.58 basis points to reach 56.35 basis point Tuesday. A single basis points equal 0.01 percent.

The South Korean government said it will remain alert and respond accordingly as North Korea’s provocations continue at a time when Korea’s economic future is unpredictable due to several factors, including trade tensions with the U.S. and the tightening of monetary policy in the U.S.

Despite repeated warning from Seoul and Washington, Pyongyang has been increasing the number of missile tests and perfecting its ballistic missiles, which can now reach Alaska.

Tuesday’s was the 12th missile test by North Korea this year.

Looking ahead, some analysts are worrying that North Korea’s threats and reactions by the rest of the world could start rattling the local and even global markets.

“The impact of the North Korea risk on the local financial market has been short lived,” said Kong Dong-rak, a Daishin Securities analyst.

But the situation on Tuesday differed from the past and reaction could start to grow. “The ICBM launch is a powerful uncertainty factor and could be a trigger of fluctuations in the Kospi in the third quarter,” said Kong.

Moody’s kept Korea’s credit rating at Aa2 Wednesday. The company raised Korea’s economic growth outlook from 2.5 percent to 2.8 percent.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]