Korea reassures economy intact despite NK tension

The South Korean government on Thursday continued to reassure on the economy’s stability despite escalating security tensions on the Korean Peninsula, as pundits also raised caution that the new level of risk may affect the markets.

Deputy Prime Minister and Finance Minister Kim Dong-yeon on Thursday held a ministerial-level meeting to review and discuss the pending situation and economic policies in Seoul.

“The persisting North Korea risk is touching off a bit of concerns, but Korea’s economy remains unshaken,” Kim said, citing signs of strong fundamentals such as the all-time high foreign currency deposit in the nation and credit rating for Korea showing stable outlook.

He said North Korea risk would be short-lived, while the latest foreign sell-off on Korea’s main stock market -- worth some 1.05 trillion won ($914 million) over the past eight trading days -- was an act of profit-taking and had little to do with the North Korea risk.

But to take precaution against potential impacts, Kim also told reporters after the meeting that authorities will maintain 24-hour monitoring of foreign markets and take immediate measures when necessary.

The South Korean government has been focusing on soothing jittery sentiments following increased tensions between Pyongyang and Washington, such as by meeting with key US investors and credit rating agency chiefs during a summit trip to Washington earlier this month.

Local economists, meanwhile, have advised a need for caution, suggesting the “unparalleled North Korea risk” is likely to cause a ripple effect on South Korea’s economy.

Kim Byung-yeon, an economics professor at Seoul National University, said the North Korean factor on the financial market has recently taken a new turn with Pyongyang’s testing of intercontinental ballistic missiles, escalating uncertainties both for the peninsula and the United States.

“The nuclear threat can not only spark regional security woes but also shake the economy (in South Korea), as long as uncertainties endure,” wrote professor Kim on a monthly journal by the state-run Korea Development Institute published Thursday.

Kim Young-il, a researcher at KDI, warned in the same publication that financial markets might neglect the potential impact of the North Korea issue if it sticks to past patterns.

“Financial markets will not be able to detect a black swan based on the data of bygone days,” Kim wrote.

Another writer of the publication, Mirae Asset Daewoo strategist Kim Hak-kyun, pointed to tense relations among East Asian nations, in part due to South Korea’s deployment of the US’ Terminal High Altitude Area Defense battery. He wrote that South Korea now faces a change in environment and needs to seek a fresh way to evaluate the impact from North Korea’s nuclear provocation.

Through Wednesday, the main bourse Kospi receded for seven consecutive trading days. The Wednesday close at 2,372.57 was 1.89 percent lower than on Sept. 18. The Kospi edged up 0.02 percent Thursday.

Days before, the credit default swap premium for South Korea‘s five-year foreign exchange stabilization bond reached its highest mark in 19 months at 74.71 basis points on Tuesday, up 2.18 percent from Monday, according to data from multinational market tracker Markit on Wednesday. It was the highest since Feb. 11, 2016, when the premium reached 78.86 basis points. The higher the premium goes, the more losses are covered when the bond defaults.

By Son Ji-hyoung 
(consnow@heraldcorp.com)