THE impasse over nuclear weapons between North Korea and the United States is starting to be felt in global financial markets, underscored by the drop in the value of the dollar late last week against the Swiss franc and German deutsche mark.
The turbulence in the value of the dollar - and the Japanese yen, which also posted declines - was widely interpreted as stemming from a flight by money traders to ``safer'' European currencies not linked to the Korean standoff.
So far, the US stock market has not been adversely affected, although some international investment managers privately say they are watching their South Korean equity holdings with special care.
In the meantime, both the South Korean and Chinese stock markets have, in recent weeks, posted losses attributed to tensions over the Korean situation. Last Tuesday, the fledgling South Korean stock market tumbled 20 points, the largest drop in four months. China's market also posted losses last week.
Wait and watch
For now, however, the large Japanese and US equities markets do not appear to be posting direct losses linked to the Korean standoff. The mood on Wall Street is one of waiting and watching, according to fund managers such as Paul Wick of the Seligman Henderson Global Technology Fund, which invests in some Asian issues.
Many US international funds, such as the Warburg Pincus International Fund, look favorably on South Korean stocks because of that nation's strong economy.
US investors ``are waiting until something definite happens [regarding Korea],'' says Hildegard Zagorski, a market analyst with investment house Prudential Securities Inc. in New York. ``If things improve, then that will help the broader market. If things get worse, that would probably work against the market.''
``The Korean situation is obviously very risky, but I think the risk of war is very limited,'' says John Lee, manager of the Korea Fund, which specializes in South Korean stocks traded on the New York Stock Exchange. The Korea Fund currently has assets of around $550 million; the fund's portfolio is comprised of 70 companies. They represent the ``blue-chip stocks of South Korea,'' Mr. Lee says. The per share value of the fund has recently been rising.
`There is some risk'
Lee, who came to the US from South Korea in 1980, says investors should not be overly worried about military conflict, even though ``there is some risk.'' The current military situation is quite different than it was in 1950, he says, when North Korea - supported by the Soviet Union and China - poured troops across the border into the South and began a conflict that lasted for more than three years.
``South Korea and the United States have a huge military presence'' on the peninsula now, making it unlikely that Pyongyang would risk a full-scale war, Lee says.
Looking ahead, Lee says he sees ``very favorable'' economic fundamentals for South Korean stocks. ``South Korea has a growth rate of around 9 percent; inflation is running between 5 percent and 6 percent; and corporate earnings this year should be very high,'' he says. ``For long-term investors, South Korea looks very promising.''
Mark Melcher, who is director of Washington research for Prudential Securities, says the threat of conflict with North Korea has been exaggerated - perhaps by the Pentagon - as a way of offsetting defense cuts by Congress.
Mr. Melcher notes that military action between North Korea and the US and South Korea would be a no-winner for the North, where there is a per capita income of just over $1,000 for the nation's 23 million people, and where 33 percent of the work force is in agriculture.
North Korea's economy, Melcher says, is in ``shambles.''
Wall Street doesn't like ``uncertainty about US foreign policy,'' one market analyst says. Thus, international money managers are expected to closely watch for signs of disagreement within the White House over US policy on the nuclear impasse.
On Friday, some concerns were raised on Wall Street over possible differences between former President Jimmy Carter, who visited North Korea late last week, and President Clinton.
Still, investors clearly ignored the Korean situation and focused on domestic issues on Friday, a day marked by heavy trading linked to quarterly expirations of stock options, stock-index futures, and individual stocks - what the market calls the ``triple witching session.''