N. Korea nuke test has not effected S. Korean financial market

By Lee Joon-seung
SEOUL, June 3 (Yonhap) -- North Korea's recent nuclear test and missile launches
have not hurt South Korea's financial market, the government said Wednesday.
The Ministry of Strategy and Finance said despite concerns of negative fallout
from the May 25 test, the credit default swap (CDS) premium for the country's
benchmark five year foreign exchange stabilization bonds fell to its lowest level
this year right after Pyongyang detonated a nuclear device.
CDS refers to a derivative that covers investors from corporate bankruptcies and
is used as an indicator of financial health. Higher premiums translate into
higher risks.
The premiums dropped to 148 basis point (bp), with numbers remaining unchanged
over the following several days even as the communist country fired off several
short-range missiles. A basis point is equivalent to 0.01 percent.
"Premiums for the derivative have since edged up to 152bp as of Monday, but this
is linked to natural developments in the foreign exchange and financial sectors,"
a ministry official said.
The official, who declined to be identified, said North Korean provocations did
not seem to affect the market, noting they may have actually removed
uncertainties.
The expert said the decision by financial agencies like S&P not to alter South
Korea's credit ratings in fact fueled investment into the local market by foreign
investors.
"There has been a net influx in overseas investment after the nuclear test,
indicating that people have become 'accustomed' to developments involving the
North and are not unduly worried," he said.
Reflecting this, the Korean currency depreciated 1.6 won to the U.S. dollar to
1,249 won on the day that the North tested its nuclear device, with the KOSPI
also edging down 0.2 percent compared to the previous session.
Overnight bank lending rates stood unchanged at 1.97 percent, with no changes
being reported in interest for certificates of deposit.
The finance ministry said such stability is a sign that market actors are not
swayed by North Korea and are making decisions based on sharp improvements in
balance of trade, stability in consumer prices and industrial output figures in
recent months.
Market conditions, meanwhile, remain relatively stable even after Seoul said
earlier in the week that the North may be trying to launch an intercontinental
ballistic missile as well as medium-range missiles.
The KOSPI dipped 2.25 points to 1,412 at the end of trading on Tuesday, with the
Korean currency falling 2.0 won to 1,239.20 won to the greenback.
yonngong@yna.co.kr
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