Hong Kong: South Korean stocks and the won dropped on Monday after North Korea said it had conducted a nuclear test, hitting regional shares and stirring caution among investors that have embraced Asian assets on hopes for economic recovery.
But North Korea’s latest provocation, coming after what it called a peaceful satellite launch that sent a rocket over Japan earlier in the year, was not expected to have a lasting impact on investors who have become accustomed to such sabre-rattling.
Seoul’s KOSPI index was down 2.2% but had slid more than 6% at one point in a knee-jerk reaction to the news, which also gave a boost to the yen as market players trimmed higher-yielding currencies such as the Australian dollar.
Traders in Seoul said foreign investors took advantage of the KOSPI’s sharp drop to shift more funds into the market, which has been one of the world’s best performing equity indexes this year with a rise of more than 20%.
The cross-market reaction was limited, with safe-haven gold prices falling slightly on the day and Japan’s Nikkei average clinging to gains.
“This is another setback but it is not something we feel will have a lasting impact on the market. This may create just a short-term, knee-jerk reaction,” said David Mann, FX strategist and head of Korea research at Standard Chartered in Hong Kong.
Shares in China also fell, but mainly due to the government’s announcement that it would allow companies to resume listing shares, stoking worries that a flood of stock supply could hit the rallying market.
The MSCI index of Asia-Pacific shares outside Japan shed 1.1%, pulling further away from a seven-month high struck last week. Technology shares, which have helped power this year’s rally, led losses.
The Nikkei pulled back from its highest levels of the day but was still up 0.9% after the North Korean test, which it had threatened to do for weeks.
The Nikkei’s gains knocked Japanese government bonds lower. June JGB futures were down 0.15 point. Korean government bond futures trimmed gains but were up 0.10 point to 110.96.
The dollar showed little reaction, down 0.2% at ¥94.55 and holding near a two-month low hit on Friday.
But higher-yielding currencies that have surged along with stocks in the past few months lost ground. The Australian dollar shed 0.6% to $0.7780, near a session low of $0.7774 on the nuclear test news.
Market activity was limited, with US and British financial markets closed later in the day for holidays.