April 27, 2024

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[THE INVESTOR] Ongoing peace gestures involving North Korea could have positive impacts on South Korea’s equity markets, though global woes would limit their upward momentum, a global investment bank said on April 27.

Marking the culmination of a series of inter-Korean reconciliation moves in recent months, the historic inter-Korean summit between South Korean President Moon Jae-in and North Korean leader Kim Jong-un is now underway at the border truce village of Panmunjom. 

“It seems markets are beginning to price in possible ‘peace dividends,’ albeit modestly for now,” Goldman Sachs said in its latest report.

Pointing to gains in construction, steel and machinery, which are related to infrastructure development for inter-Korea economic integration, the bank said geopolitical factors seem to “have still played a role in several sectors.”

But overall markets have shown relatively muted reactions to the recent risk-easing events, Goldman Sachs pointed out, citing limited gains by the local stock market, the fall in the dollar-won skew and the decrease in the Korean sovereign five-year credit default swap premium since early March.

Despite a modest positive impact on local equity markets since the announcement of the inter-Korea summit, “experience suggests that global factors are likely to dominate Korean markets,” the report said, pointing to pressures from rising US rates and trade frictions between the United States and China.

The international bank, however, expressed guarded optimism by saying that geopolitical factors “could play a bigger role, helping support Korean equities and Korean won, once market concerns over trade tension and sharp rises in bond yields fade.”

By Song Seung-hyun and newswires (ssh@heraldcorp.com)