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Analysts are mixed on cancellation’s impact

May 26,2018
Korean markets closed lower on Friday following U.S. President Donald Trump’s abrupt cancellation of the United States-North Korea summit, which had been set for June 12 in Singapore.

The main Kospi bourse edged down 0.21 percent to 2,460.8 while the tech and bio-heavy Kosdaq index shed 0.57 percent to close at 868.35. The slight downturn is in line with New York’s Dow Jones Industrial Average, which lost 0.3 percent on Thursday after Trump pulled out from the planned meeting.

Financial authorities scrambled to assuage domestic markets on Friday, saying that Trump’s withdrawal would only have a limited impact on Korean financial markets.

The Bank of Korea (BOK) held an emergency meeting at 8:30 a.m., hours after U.S. President Donald Trump released his statement scrapping the meeting.

The closed-door meeting was chaired by Yoon Myun-shik, the senior deputy governor of the BOK, along with several senior officials at the central bank.

“As we saw in the U.S. market’s overnight session, the index fell in the beginning but recovered the losses afterwards,” Yoon told reporters after the meeting. “The South Korean market is expected to move likewise, although foreign investors here are more sensitive to geopolitical risks.”

In light of previous geopolitical tensions, the effects from Trump’s withdrawal will not be serious, Yoon went on to say.

“In the past, geopolitical risks like North Korea’s missile and nuclear tests had a short-lived impact on the market,” Yoon said. “But we will keep close tabs on the market and be ready to take action.”

Some analysts echoed the central bank’s sentiments.

“[The cancellation] will have a limited impact, although the effect will be negative,” said Lee Eun-taek, an analyst at KB Securities. “But we don’t see the summit as being totally off, and it won’t bring in significant changes to the markets.”

But others expressed more cautious opinions, indicating that the recent cancellation will pile up uncertainties on deteriorating investor sentiment.

“The global financial market has turned towards haven assets following the decision,” said Lee Kyoung-min, an analyst at Daishin Securities. “At the same time, the Dow index lost 200 points and oil prices went down more than 1 percent.”

“Gold prices jumped more than 10 percent, while the yield on 10-year Treasury bonds dipped below 3 percent,” Lee said.

He warned that Korea should be concerned about fluctuations in won-dollar currency markets and potential capital flight from foreign investors.


BY PARK EUN-JEE, YONHAP [park.eunjee@joongang.co.kr]