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Market watchers forecast geopolitical tension to persist

Questions persisted on whether South Korea‘s stock markets fully escaped from the geopolitical risks that had weighed on the monthslong record run until late July, despite the rebound seen last week.

Over the past week, the Kospi rose 1.8 percent to close at 2,358.37 Friday, including 0.14 percent retreat on Friday. The main bourse index gained for three consecutive trading days until Thursday. The stock markets did not open on Tuesday for a national holiday.

The recovery was mainly led by market giants. Market bellwether Samsung Electronics rose 5.1 percent throughout the week, while the second-largest in market cap SK hynix rose 9.12 percent while gaining for four consecutive days. 

But many local analysts took a cautious stance on whether the impact on stock markets from the war threats completely died down, partly because foreign selling spree is forecast to persist.

“Lowered stock prices have yet to signal a buying momentum for investors,” wrote Kim Young-hwan, an analyst at KB Securities. “Since July 24, foreign investors had carried out massive Kospi sell-offs, while rarely net purchasing stocks during a trading session.”

The Kospi spiraled down 5.4 percent in three weeks from the record-high at 2,451.53 on July 24 to 2,319.71 on Aug. 11. The market was seen reacting to verbal saber-rattling between the United States and North Korea escalating in early August with Pyeongyang’s threat to attack the US territory of Guam with a ballistic missile.

Geopolitical tensions appeared to have abated as the war threats of the United States and North Korea gave way to prioritized diplomacy last week. 

However, stock markets will not be able to get rid of North Korea threat, Yoon Chang-yong, a researcher at Shinhan Financial Investment, wrote in a report, calling it a cause for devaluation of Korean stocks and economic damage in the long run.

“While the financial markets are increasingly inured to the North Korea threats, the economy is beset (by the ongoing threat).” he wrote, while adding the decrease by more than 1 percent of the gross domestic product of Korea due to China‘s alleged retaliation against Korea’s deployment of the Terminal High Altitude Area Defense system.

Another analyst Kim Yu-kyum of Cape Investment & Securities wrote the Korea-US joint military exercise Ulchi Freedom Guardian, slated from Monday to Thursday, may “resurrect the North Korea risk” at home and abroad.

By Son Ji-hyoung (