South Korea markets plunge on news North Korea is preparing for war
South Korean stocks continued to fall Tuesday on reports that North Korea was preparing for military action and had accused the South's Navy of trespassing.
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Yonhap news agency initially reported today that the North was preparing for war, although this was later clarified to say that the North only intended to retaliate if attacked, according to Reuters. Separately, Yonhap also reported that the North accused South Korea's Navy of trespassing in its territorial waters from May 14 to 24, and warned of military retaliation, according to CNN.
Markets in South Korea and the region plunged, a reflection of how volatile the situation remains after a multinational probe last week squarely blamed North Korea for sinking a South Korean ship with a torpedo on March 26, killing 46. South Korea's main stock market index fell 2.8 percent and the won fell 3.7 percent against the Japanese yen, according to Bloomberg.
Reuters said investors were closely watching how tensions play out:
"The Yonhap report ... chilled investor sentiment as it highlighted South Korea's geopolitical risks. And the timing for such news could not be worse, as market sentiment was already shaky with renewed eurozone financial fears," Hwang Keum-dan, a market analyst at Samsung Securities, told Reuters. "The stock market will have a hard time recovering until these two big uncertainties are somewhat resolved."
South Korean financial officials will hold an emergency meeting Wednesday to discuss how to calm markets, according to Reuters.
"Geopolitical risk is unpredictable, and people were totally shocked today [by news of North Korea's combat-readiness order]," Oh Tae-dong, a strategist at Taurus Investment & Securities, told Dow Jones. "But I think today's sharp drop in stocks seems to have reflected worries over possible military clashes between the two Koreas. I suggest investors refrain from dumping out of panic ... as I don't think war would break out on the Korean peninsula."
Kim calls to arms
News of Kim Jong-il's call to arms was published on the Korean-language website of North Korean Intellectuals Solidarity, a Seoul-based group of defectors from the North who oppose the Pyongyang regime. The website quoted a North Korean broadcast from May 20 as saying, "We do not hope for war but if South Korea, with the US and Japan on its back, tries to attack us, Kim Jong-il has ordered us to finish the task of unification left undone during the ... [Korean] war," according to Reuters.