South Korean markets jolted by tensions with the North

SEOUL (BestGrowthStock) – South Korean financial markets tumbled on Tuesday and its currency slid to a 10-month low as heightening tensions with North Korea added to investors’ concerns about a slowdown in world economic growth.

Seoul shares fell 4.5 percent to a near 6-month low, extending losses after North Korean leader Kim Jong-il told his military it may have to go to war but only if the South attacks first, according to a South Korea-based group which monitors the hermit state.

Foreign investors dumped stocks for the seventh trading session, driving the country’s largest stock Samsung Electronics to a near 3-month low.

The cost of insuring South Korea’s debt against default jumped to its highest in 10 months, with the sovereign 5-year credit default swap spread soaring to 156 basis points. The won lost 4.5 percent against the dollar,

“As talk of war picked up, there was a rush of dollar buying,” said a foreign bank dealer in Seoul. “Intervention contained its upside, but it is highly likely to turn back higher,” he said, in reference to the South Korean authorities’ dollar-selling in early trade.

Dealers spotted South Korean authorities had sold dollars to curb the won’s decline.

The 3-year June treasury futures’ contract turned into negative territory after the North Korea news.

Foreign investors remained net buyers of the bond futures, indicating that the selloff in financial markets would not trigger an overall departure of foreign capital from Asia’s fourth-largest economy but a shift to safer assets.

Matthew Huang, an economist at Barclays Capital, said the won would stage a rebound and yield higher returns than other emerging markets’ debt in Asia.

“Even compared with Indonesia, the currency has more room to appreciate,” he said. “I will pick up 15-20 percent on the currency and another 5 percent on 10-year (South Korean treasury) bonds for the next one year.”

South Korean officials tried to calm market jitters.

A senior South Korean central bank official said sharper declines in markets than in regional peers were driven by investor psychology and a temporary “overshooting.”

A team of senior South Korean central bank officials plans to meet later in the day to discuss how to ease market volatility.

Stock Market Today

(Reporting by Kim Yeon-hee; Editing by Jan Dahinten)

South Korean markets jolted by tensions with the North