North Korea's announcement of its plan to conduct a nuclear test had a limited effect on South Korea's overall financial market Wednesday but made a short-term dent in the local bourse, officials and analysts said.
The surprise announcement on Tuesday had limited repercussions on foreign exchange and bond markets here, but foreign investors unleashed a selling spree of futures to send the stock market lower, they said.
International tensions have mounted after North Korea announced Tuesday it will conduct a nuclear test in the future to respond to U.S. hostility towards the communist country. But the North stopped short of giving a specific date.
"The international financial market has not responded to North Korea's announcement and for the moment overall conditions are stable," said Kwon Tae-kyun, head of the international finance bureau at the Ministry of Finance and Economy. He predicted that the threat of a nuclear test may not rock the economy, but said there may be a need to carefully monitor developments.
Kwon said that North Korea may have made the announcement as a last resort to break the impasse that has stalled the six-party talks regarding the North's nuclear ambition since last fall. The talks involve the two Koreas, the United States, Japan, China and Russia.
Reflecting the cautiously optimistic view, the U.S. dollar gained a mere 1.50 won from Monday's close. The local financial market was closed on Tuesday, when the nation observed National Foundation Day.
South Korea's stock market also reported little signs of panic, though the benchmark Korea Composite Stock Price Index fell over 1.6 percent, sparked by foreign selling of futures.
The benchmark KOSPI lost 22.22 points, or 1.62 percent, and the tech-heavy KOSDAQ index sank 9.67 points.
"Unless North Korea actually carries out a nuclear test, the South Korean economy will not be adversely affected," said Kim Young-ick, chief of Daishin Economic Research Institute.
Kim and other analysts said past measures by North Korea to ratchet up tensions did not rock the financial markets. The North said on Feb. 10, 2005 that it has nuclear weapons. It further test-fired a series of missiles into the East Sea on July 5 this year.
Echoing this view, the Korea Center for International Finance said any fallout from the threat will be short-lived and limited unless the North actually follows through on its threat.
On concerns that the atomic test plan could hurt South Korea's sovereign ratings, companies like Standard & Poor's (S&P) and Fitch Ratings said there is no need to make immediate adjustments.
S&P reportedly said that South Korea's sovereign rating will not be affected by Pyongyang's latest move and that a peaceful resolution remained the only viable option for tackling this issue.
Fitch also said that North Korea's nuclear threat has already been incorporated into South Korea's sovereign rating scheme.
Seoul, Oct. 4 (Yonhap News)
N. Korea's nuclear test threat has limited impact on Seoul markets |