S. Korean financial markets shrug off firing drill jitters

South Korea`s financial markets shrugged off jitters Monday over escalation of inter-Korean military tension due to Seoul`s live-fire drill near Yeonpyeong Island.

The benchmark stock index KOSPI stayed above 2,020 as foreign investors mostly ignored jitters and maintained a buying spree. The won gained a little against the U.S. dollar.

Major Asian stocks got off to a weak start but recouped much of their earlier losses on news that North Korea agreed to allow U.N. inspectors to return to the Stalinist country. Stock experts say the North’s provocations, the biggest negative factor in South Korea’s financial markets, will ease following the live-fire drill.

If Pyongyang retaliates, however, this will rattle financial markets again.

In South Korea, stock and foreign currency markets got off to a weak start. The KOSPI fell 29.86 points (1.47 percent) around 11 a.m. when drills were initially expected to start and tumbled below 2,000 at one point. But the index recovered to the 2,010 mark as the drill was delayed, and regained most of its lost ground after the North agreed to permit the return of U.N. inspectors.

The KOSPI finished the day down 6.02 points (0.3 percent) to close at 2,020.28.

Foreign and institutional investors including pension funds pushed up stock prices. Foreign investors hunted for bargains after stocks fell to below 2,000, maintaining a net buying position.

Investment trust companies sold about 160 billion won (139 million U.S. dollars) worth of stocks as individuals withdrew money from funds, but this was offset by purchases by pension funds including the National Pension Fund.

A source at a pension fund said, “Pension funds were having a hard time due to rising stock prices since they have to increase the portion of stock investment in their portfolio. The Yeonpyeong threat is a temporary boost for them.”

The won also recouped its earlier losses after starting off weak. After surging 1.68 percent to 1,172.3 in early trading, the won-dollar exchange rate closed the day down 0.23 percent at 1,150.2.

artemes@donga.com achim@donga.com