Trump Dou­bling Down on Rhetoric Rat­tles South Korean Mar­kets

The Star (St. Lucia) - - BUSINESS -

South Korea’s stocks and cur­rency fell af­ter Pres­i­dent Don­ald Trump warned North Korea that if it “does any­thing” to the U.S. or its al­lies “things will hap­pen to them like they never thought pos­si­ble.”

The Kospi in­dex dropped 1.7 per­cent at the close of trad­ing in Seoul, round­ing off a 3.2 per­cent de­cline for the week, the worst since June 2016. The won weak­ened 1.6 per­cent against the dol­lar for the week, the most since March. The Kospi 200 volatil­ity in­dex jumped as much as 27 per­cent Fri­day. The cost of in­sur­ing five-year South Korean sov­er­eign bonds from non­pay­ment rose by 5 ba­sis points Fri­day morn­ing to 69 ba­sis points, ac­cord­ing to prices from No­mura Hold­ings Inc.

Trump de­liv­ered the fresh warn­ing to re­porters Thurs­day in Bedminster, New Jersey, af­ter a lunch with Vice Pres­i­dent Mike Pence, say­ing his com­ments Tues­day that the U.S. would bring down “fire and fury” on North Korea, maybe weren’t tough enough.

The lat­est con­tin­ues days of es­ca­lat­ing rhetor­i­cal ex­changes be­tween the U.S. and North Korea sparked, in part, by the Aug. 5 unan­i­mous vote in the United Na­tions Se­cu­rity Coun­cil to im­pose new sanc­tions on the Kim Jong Un’s regime.

“The is­sue of North Korean risk is not just a mat­ter for us -it has ac­tu­ally be­come a global risk,” said Jung Sung Han, a fund man­ager at Shin­han BNP Paribas As­set Man­age­ment Co. in Seoul. “I see there’s noth­ing much to earn for for­eign in­vestors from now on as shares have been cor­rected and won has also been weak­ened a lot.”

In U.S. mar­kets, the S&P 500 In­dex fell 1.5 per­cent Thurs­day, the most in three months, and the CBOE Volatil­ity In­dex soared 44 per­cent. Gold jumped to a nine-week high and the yen pushed to­ward 109 per dol­lar.

South Korea will strengthen mon­i­tor­ing of fi­nan­cial mar­kets and econ­omy, and take ac­tion based on a con­tin­gency plan in case of any un­usual move­ments, the Fi­nance Min­istry said in a state­ment af­ter meet­ing with other min­istries, Bank of Korea and fi­nan­cial reg­u­la­tors.

Not all were pes­simistic about the out­look for the mar­ket. North and South Korea have tan­gled for decades and never signed a peace treaty for­mally end­ing the war of the early 1950s.

There’s “noth­ing much to earn” by sell­ing South Korean eq­ui­ties at the mo­ment, said Heo Pil-Seok, chief ex­ec­u­tive of­fi­cer at Mi­das In­ter­na­tional As­set Man­age­ment. “It’s not first time for us to wit­ness this kind of geopo­lit­i­cal risk. We are psy­cho­log­i­cally im­mune to this kind of is­sue.”

Over­seas in­vestors pulled a net $577 mil­lion from South Korea’s eq­ui­ties mar­ket Fri­day, trim­ming its year-to-date in­flows to $7.3 bil­lion, ac­cord­ing to data com­piled by Bloomberg us­ing of­fi­cial fig­ures.

“The equity mar­kets are in risk re­duc­tion mode as in­vestors move to se­cure liq­uid­ity with spec­u­la­tors ex­ac­er­bat­ing moves through tac­ti­cal shorts,” Stephen Innes, head of trad­ing at for Asia-Pa­cific at Oanda Corp. in Sin­ga­pore, said in a note Fri­day. “Con­sid­er­ing the lim­ited steps in forex, the sig­nals sug­gest we’re in the midst of a global risk as­set con­sol­i­da­tion as op­posed to a deeper re­treat, how­ever.”

The won’s drop this week has de­throned the cur­rency from be­ing Asia’s best per­former this year up un­til the end of July.

“The mar­kets have been on risk-on mode for 2017, so tak­ing funds off makes lots of sense given ris­ing volatil­ity and the risk,” said Roy Teo, a cur­rency strate­gist at LGT Bank Ltd. in Sin­ga­pore.

Stocks in South Korean mar­kets have been im­pacted by Pres­i­dent Trump’s stance against North Korea.

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