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North Korean launch will have limited market impact: analysts

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Published : 2012-04-10 22:03
Updated : 2012-04-10 22:03

North Korea’s planned long-range missile launch between Thursday and Monday is expected to have no more than a day’s impact on the South Korean bourse, but if followed by a nuclear test, it could be the start of a major blow to the financial markets, analysts said.

North Korean space officials have moved all three stages of a long-range rocket into position for the launch, vowing Sunday to push ahead with their plan in defiance of international warnings against violating a missile ban.

A Japan-based newspaper that often works as Pyongyang’s mouthpiece said the North could conduct a third nuclear test if it is slapped with additional sanctions by the U.S. and its allies over its launch.

Nomura Securities warned that although the missile launch alone would have a limited effect on the South Korean bourse or currency exchange rates, market uncertainties could be exacerbated depending on the reaction from the international community.

Considering that North Korea’s new leader Kim Jong-un’s governing style is not much different from his father’s, Pyongyang will go ahead with the missile launch despite the hardscrabble lives of its people, Nomura said.

Financial market instability will grow if the North conducts a nuclear test or makes highly provocative moves like the shelling of a border island in 2010 in resistance to international sanctions, according to Nomura.

It is a dominant view among South Korean market watchers that the North’s proposed missile test is only a short-term risk to the local stock market.

“A temporary shock on the day of the launch is inevitable, but I don’t think the missile test alone would have any additional impact afterward,” said Han Chi-whan, an analyst at KDB Daewoo Securities.

“The local stock market could fluctuate heavily, however, depending on the direction of the negotiations for the North’s denuclearization after the missile test.”

When Pyongyang fired a long-range missile on a Sunday in April 2009, the KOSPI gained 1.1 percent to close at 1297.85 points the next day.

The KOSPI fell 3.43 percent when the North announced the death of its leader Kim Jong-il on Dec. 19, but recovered within two days.

“It has been quite some time since the local bourse has not responded to North Korean factors,” said Park Jung-woo, an analyst at SK Securities.

“Once stock prices drop due to the missile launch, it could even be an opportunity to buy.”

The Korean won fell against the U.S. dollar for two days in a row on Monday, but market observers attribute it more to the disappointing U.S. employment figures announced last week and the deepening fiscal crisis in Spain, rather than the North Korean missile launch plan.

Finance Minister Bahk Jae-wan said Tuesday the geopolitical risks posed by Pyongyang’s missile test plan will be limited and that the Seoul government will take swift action, if necessary, to reduce repercussions.

“Our financial market has the fundamentals to withstand unfavorable conditions such as the eurozone debt crisis and the death of former North Korean leader Kim Jong-il last year,” Bahk said.

“The government is closely observing internal and external factors of uncertainty, and will take appropriate measures if necessary.”

By Kim So-hyun (sophie@heraldcorp.com)

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