South Korea’s stock markets ended higher Friday in the wake of a historic inter-Korean summit that signaled the path to denuclearization of the Korean Peninsula.

The top-tier Kospi closed at 2,492.40, up 0.7 percent from Thursday’s close, while the second-tier Kosdaq came to 886.49, up 0.8 percent.

Earlier Friday morning, the Kospi had breached the 2,500 mark, hitting an intraday high of 2,508.13 for the first time in over a month.

The Kospi and the Kosdaq saw net purchases by foreign investors, estimated to be worth 145.6 billion won ($135.1 million) and 19 billion won, respectively. On the Kospi, individual investors net purchased nearly 258.4 billion won worth of shares. 

But analysts urged investors to remain cautious on heightening volatility of the stock market, despite signs of diplomatic and economic development on and around the Korean Peninsula.

Oh Jae-young, an analyst at KB Securities, acknowledged in a note to investors that Friday’s summit -- the first in 11 years -- would serve as a “bridge to success” for an upcoming summit between North Korean leader Kim Jong-un and US President Donald Trump.

“If the two summits end in success, these will contribute to a relief in geopolitical tension and subsequently lead to lowering the level of the ‘Korea discount,’” wrote Oh, referring to a phenomenon of undervaluation of Korean capital markets due to risks involving North Korea.

But Oh also wrote the market would be subject to volatility for “as long as a year” depending on the procedures in shaping plans for denuclearization and business cooperation.

“It will take a while for what was discussed in the summits to materialize” he added. “We have to keep an eye on the possibility of an increase in market volatility throughout the process of denuclearization, removal of sanctions and the following business cooperation.”

Stocks riding on anticipation of a construction boom through possible infrastructure-building projects in North Korea were weak Friday. For instance, Hyundai Elevator shed 1.1 percent and Eehwa Construction dipped 6 percent.

Other capital markets moved in line with the rerun of rapprochement in more than a decade.

Sovereign bond markets were slightly bullish. The three-year state bond yield edged down 0.8 basis points compared to the previous trading day, while the 30-year government bond slid 1.1 basis points. A bond price moves inversely to a bond yield.

The Korean won strengthened against the greenback Friday. At the Friday session’s close, the local currency strengthened by 4.3 won against the dollar, which was trading at 1,076.6 won.

By Son Ji-hyoung
(consnow@heraldcorp.com)