SEOUL – South Korean shares and the won fell early on Monday (Sept 4) as North Korea’s sixth and most powerful nuclear test to date sent the local bourse to a three week low.
The Korea Composite Stock Price Index (KOSPI) was down 0.6 percent at 2,343.83 points as of 0204 GMT. The index opened 1.7 percent lower at 2,316.89, its lowest since Aug. 11.
The won was quoted at 1,131.8 against the dollar, down 0.8 percent compared to the previous close of 1,122.8.
It was also the weakest intraday trading level in almost two weeks.
Kim Hyung-ryeol, a stock analyst at Kyobo Securities, says the latest test has injected fresh uncertainty into financial markets.
“It is too early to predict the KOSPI’s next direction as geopolitical risks regarding North Korea could increase South Korean markets’ volatility this month along with major central banks’ policy meetings,” said Kim.
Major market heavyweight stocks declined with SK Hynix down nearly 1 percent and web portal Naver down 2.7 percent.
Risk reversals in won options , used to hedge against volatility in the currency, edged up to 2.4 points while the spread on South Korea’s 5-year credit default swaps escalated to 62.9 basis points from Friday’s 60.0 basis points.
Offshore investors, however, were set to be net buyers of KOSPI shares near mid-session, helping the index to pare some of its earlier losses.
Foreign investors bought a net 94.1 billion won ($83.17 million) worth of domestic shares.
“North Korea’s latest nuclear test is taking a toll on overall Seoul bourse but last week’s robust exports especially are assuring investors that the fundamentals of local economy are not hurt,” Kim said.
South Korea’s exports marked their longest run of growth in almost six years in August, highlighting a nascent normalisation in global demand.
September futures on three-year treasury bonds fell 0.09 point to 109.20.