FINANCIAL MARKETS REBOUND DAY AFTER DPRK,S

UNCLAS SEOUL 003442 SIPDIS CORRECTED COPY - CAPTION ADDED SENSITIVE SIPDIS NSC FOR KURT TONG EAP/K FOR ROBERT ARMSTRONG STATE PASS USTR FOR CUTLER E.O. 12958: N/A TAGS: ECON EFIN EINV PREL KS KN SUBJECT: FINANCIAL MARKETS REBOUND DAY AFTER DPRK,S REPORTED NUCLEAR TEST SUMMARY -------------- (SBU) Korean financial markets posted a fledgling but solid recovery the day after North Korea,s reported nuclear test. Equity indices jumped, buoyed by continued bullish sentiment among chiefly institutional and foreign investors. The won/dollar rate stabilized, as panic-driven dollar buying subsided. Some DPRK economic and tourism projects were put on hold, as public and private sector leaders adopted a cautious, &wait and see8 approach. Many analysts believe a short-term recovery will continue but it hinges on international reactions to the evolving situation. END SUMMARY. BOURSES AND WON UP... -------------- (SBU) On October 10, the ROK,s equity markets closed higher, chiefly due to massive foreign investor buying and a strong rebound in tech blue chips. The benchmark Korea Composite Stock Price Index (KOSPI) rose 0.7 percent, to close at 1,328.37. The tech-heavy Kosdaq index jumped 2.8 percent to finish at 554.70. The won closed at 959.30 to the U.S. dollar, down 0.48 percent, from Monday,s close (963.9),as panic-driven dollar buying subsided. ...FOREIGN INVESTORS TO THE RESCUE -------------- (SBU) Exploiting the 2.41-percent KOSPI drop on October 9, foreign and institutional investors continued their net equity purchases today. Foreign investors bought 90 billion won (USD 94 million),after buying 128 billion won (USD 133 million) on October 9. This buying trend is widely viewed as a strong recovery engine that will counter-balance and eventually calm retail investor selling, according to our contacts. WAIT TO SEE ON NORTH KOREAN VENTURES -------------- (SBU) Hyundai Asan Corporation (HAC),operator of the Mount Geumgang tours and primary contractor for infrastructure development of the Kaesong Industrial Complex,s (KIC) Pilot Phase, seems to be taking a &wait and hope for the best8 outlook for its North Korea operations following the DPRK's October 9 claims of a nuclear test. (SBU) HAC senior vice president Jang Whan-bin told us more than three hundred people had cancelled reservations for Mount Geumgang but they were mostly provincial and city government officials. Since most of these officials are opposition Grand National Party (GNP) members, their cancellations may reflect a GNP decision, not independent ones by local government groups. (SBU) October is a peak month for HAC,s Mount Geumgang reservations. Jang told us that he did not expect the DPRK to do anything to discourage those bookings since it receives an average of USD 50 per tourist. He added that he had heard nothing from ROKG officials about HAC,s operations in North Korea and that the plan was to continue with business as usual until told otherwise. On the other hand, Korea Tourism Organization President Kang Kwang-ho noted plans for new Mount Geumgang tourism programs are &all in the air now.8 In a related development, the Ministry of Unification confirmed that it had halted a flood aid shipment of 4,000 tons of concrete to the DPRK in the wake of the nuclear test announcement. COMMENT -------------- (SBU) Over the near term, ROK financial markets may remain stable (albeit with fluctuations within a range),as investors assess international reactions to the evolving DPRK situation. Over the longer term, all of our interlocutors stressed the importance of international reactions that will play into the evolving situation. END COMMENT. VERSHBOW