The South Korean stocks experienced the biggest decline in last 4 months and the major currency of the country; Won sank to half-year low figure as well. This Asian country’s risk of conflict with North Korea curbed the demand for the assets of the same. On the other hand, the cost to protect sovereign bonds against default jumped up to the highest figure since last September.
A law was ratified by North Korea on this week, thereby authorizing plans for taking counter-actions against US aggression including a nuclear strike, as reported by the official media. In last week, the communist nation stated that a state of war exists currently with South Korea. North Korea has also decided to restart the mothballed nuclear plant. South Korean workers were not allowed to enter the jointly run industrial part at Gaeseong either.
According to the Analyst at Samsung Futures Inc., Jeon Seung Ji, North Korea is heightening threats with each passing day and the risk is becoming a negative factor on the financial markets of South Korea. As the tension is increasing, more and more foreign investors are thinking of selling the South Korean stocks, thereby weakening the currency further. It is probably a point when the exporters should try to sell Dollars.
The benchmark gauge of South Korea, the Kospi Index declined by 1.2% and is currently at 1959.45. This marks its steepest loss since 15th November. Incidentally, Won has slumped by 5.3% in the last 3 months, thereby becoming the 2nd worst performing currency in Asia. It has declined by 0.5% on today and currently is priced at 1123.71 per USD.
The cost of insuring South Korea’s debt against non-payment with credit-default swaps increased by 4 basis points and is currently at 86, marking its highest value since last September. Government bonds were more or less steady. The yield on the 2.75% South Korean notes due on March, 2018 was unchanged at 2.56%, according to the prices released by Korea Exchange Inc. On last week, the 5-year yield went to 2.51%, marking the lowest figure since 2000.
On 11th April, the policy makers of Bank of Korea will meet again and they will review the benchmark rate. The same has been kept unchanged at 2.75% since last October, when it was cut down by 25 basis points.