Monday, May 9, 2011

Pyongyang Rhetoric Rattles South Korean Market

By Jieun Shin and Jung-Ah Lee

North Korea’s inflammatory rhetoric usually leaves markets unmoved, but the decision to add artillery fire this week put a new spin on its words. So when the official Korean Central News Agency, as quoted by the Yonhap news agency, said Friday that Pyongyang ?is “ready to annihilate” South Korea’s strongholds if the North’s sovereignty is even slightly violated—its standard line when the South holds military exercises—it helped send the Seoul index down 1.3% on the day. The U.S. and South Korea will hold a scheduled joint drill starting this weekend.

“The bearish trend could continue through early next week,” due to tense situation on Korean peninsula, says Hyundai Securities analyst Bae Sung-young. The weakness was broad, with LG Electronics down 0.9%, Samsung Electronics down 1%, Hyundai Motor down 1.4% and Hynix Semiconductor down 2.2%.

Meanwhile the U.S. dollar took off against the won. “Shortly after the North’s comment, offshore dollar-buying demand spiked,” says a local bank dealer. The dollar hit an intraday high of 1,164.5 won before paring gains on exporter selling; it was recently at 1,155.45, from 1,142.20 Thursday.

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