[Opinion] Tolerance of the North Korean Nuclear Weapons

On October 10, a day after the announcement of the nuclear testing by North Korea, the domestic stock market was busy with individual investors selling their stocks. On October 9, the net private sales of 670 billion won were the highest over the last two years. But the private investors in the KOSDAQ market were calmer than ever, compared to the times when the index fell by 10 percent due to the bargain sales. They merely inquired how long the confusions were expected to last. Since 2002, 14 NK nuclear shocks have struck the stock market. Except in one case where the downward slope was maintained for seven consecutive days, the index recovered in 1~3 days. This time, it upturned within a day.

Phone calls kept the banks noisy on the second day, too, but no repurchase confusion was aroused. Those in charge of private banking answered, saying, “Why don’t we wait longer and see?” They also added the explanation that the more influential factors now are the reactions of super powers including the U.S. The jewelry market was quiet too, and no hoard of ramyeon (instant noodles) or necessities could be seen in large markets. No rush purchase of dollars, either. This is a strong sign that the tolerance to the NK nuclear threats has hardened.

The stocks released into the market by individuals were mostly bought up by foreigners whose net acquisitions over the last two days amounted to 650 billion won. Perhaps they had access to special information about the NK nuclear weapons or rated the threats from the nuclear weapons poorly. “No. The weight of Korea had fallen due to the sales of 15 trillion won since the end of April. They only bought the stocks because the price fell,” says the executive director of Merrill Lynch Global Securities Lee Nam-woo. His explanation was that the foreigners bought the stocks since the entry rate was lower than the market ratio.

Thus, we cannot keep ourselves idle boasting about our apparent tolerance to the NK threats. We can be struck with internal injury. Even though the stock market stays indifferent, the direct investments by foreign enterprises can shrink by a considerable degree. The amount of money that leaked out of Korea this year for investment on foreign stock funds or on bonds in the U.S. or global markets was about $17 billion (about 16.3 trillion won), but it is expected that more will be added to the amount with the nuclear testing by North Korea. The target growth rate of four percent next year is already shaky, and the impact of the NK nuclear testing is beyond estimation. We cannot afford to be relaxed anymore. We have to find a solution.

Hong Kwon-hee, Editorial Writer, konihong@donga.com