Seoul tumbles after North Korea confirms nuke test
By Chris Oliver, MarketWatch
Last Update: 4:03 AM ET Oct 9, 2006
HONG KONG (MarketWatch) -- South Korean stocks dropped sharply Monday after North Korea announced it had conducted an underground nuclear weapons test, raising concerns that investment money may flow out of its neighbor to the south over risk concerns.
The declines came after the Korean Central News Agency declared in a statement: "The field of scientific research in the DPRK successfully conducted an underground nuclear test under secure conditions on Oct. 9, Juche 95 (2006) at a stirring time when all the people of the country are making a great leap forward in the building of a great prosperous powerful socialist nation."
The statement added there was no leakage of radioactive material from the site where the test was conducted.
South Korean officials said Monday that a seismic wave of magnitude-3.58 had been detected in North Hamkyung province, according to South Korean media reports. The blast took place at 10:36 a.m. local time Monday, or 9:36 p.m. Sunday Eastern.
South Korean stocks, which had begun the day with modest gains, immediately fell more than 3%, before recovering somewhat, with the Kospi index closing down 2.4% at 1,319.4, its lowest level in more than six weeks.
Bill Belchere, chief economist Asia Macquarie Securities, cautioned the event was negative for South Korean markets and may have some longer-term consequences if credit agencies issue a sovereign downgrade on the basis of heightened geopolitical risk in coming days.
"Clearly this begins to raise the risk premium and that means at the margin money will flow out of South Korea," Belchere said.
"I guess the most interesting question is will it feed through to Thailand and does it hit other countries with political difficulties and or instability at the moment," he said.
He added the impact upon Thailand, Indonesia, Sri Lanka and other markets appeared minimal.
Still, some economists downplayed risks the development could dampen regional economic growth.
"I think it [nuclear test] mainly has ramifications for national security, I don't think it has any direct ramification for the economic outlook for Asia," said HSBC's chief economist for Asia Pacific, Peter Morgan. "Obviously it raises the risk of certain unpleasant scenarios but we are not going to change our forecasts based on this particular development."
He cautioned heightened security anxieties could spark a nuclear arms race in North Asia. "We do have to worry about escalation scenarios and how the Chinese will react to that," Morgan said.
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