November 24th, 2010
02:53 AM GMT
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Hong Kong, China (CNN) – The conflict may be between the two Koreas, but this latest clash between the North and South is a major cause of concern across the world, shaking markets in the U.S. and elsewhere.

North and South Korea artillery exchanged fire for an hour on Tuesday. The attack on Yeonpyeong Island was the first direct artillery attack on South Korea since the 1953 cessation of hostilities.

The Dow Jones industrial average fell 142 points, or 1.3%, to close at 11,036 on Tuesday. The S&P 500 fell 17 points, or 1.4%, to 1,181. The Nasdaq slid 37 points, or 1.4%, to 2495, CNNMoney reported – a sell-off sparked by the crisis in Korea, as well as continued concerns over Europe’s debt crisis and a grim outlook by the U.S. Federal Reserve.

Yet underneath the panicked selling, something new can be seen in South Korea’s financial response to this latest crisis.

As President Lee Myung-bak assembled a meeting of South Korean leadership in a bunker underneath Seoul, the country’s top economic policymakers also met in emergency session within hours of the strike. They issued a statement that the government stands ready to tap its foreign reserves in case panic dries up liquidity in the Korean markets.

"Timely action will be taken if excessive herd behavior is detected ...  and the Bank of Korea (is) set to cooperate on stabilizing the market," the finance ministry said in a statement after the meeting, according to state news agency Yonhap.

The result? Although the value of the won cratered overnight, dropping to 1,170 to the dollar from its 1,125 Tuesday  close, within an hour of markets opening on Wednesday the won was back up to 1,145.

The worst market reaction to Korean Peninsula tensions was in October 2006, when North Korea detonated a nuclear weapon underground, said Kwon Goohoon, co-head of Korean research at Goldman Sachs in Seoul.

“At that time the Korean won weakened sharply and took 13 days to recover,” Kwon said. The Kospi Index, Korea’s primary stock market, took five days to recover.

“This time, despite the seriousness of this particular, the market seems to be more confident,” Kwon said.

The government’s financial response to the shelling came much quicker than past crises, Kwon said. “I think there’s been a learning curve, given the volatility over the last two years in context of the subprime crisis,” Kwon said of the proactive steps Korean policy makers took to calm investor worries.

So it could have been much worse. But there remains one unknown.

“If there is no further provocation, we expect the markets will stabilize,” Kwon said. “The only concern right now is how North Korea will react.”

soundoff (12 Responses)

    I am sure Hu Jintao of China was on the phone immediately with Kim of North Korea saying what in the world are you doing... You will stop this ASAP! China might be a communist state, but it is no dummy, China and the US are too far in each others business to allow another communist nation like N. Korea to allow such behavior. I know one thing if I was Hu of China I would be very engaged to understand just what is going on with N. Korea, the revelations of covert nuclear programs, China should not tolerate such behavior for a country it things of as a friend. It is in China's best interest to be more forceful with them now! If China balks, N. Korea might try and become aggressive with China, China cant allow N. Korea be this way, it is not in China's interest.

    November 24, 2010 at 5:03 am |
  2. cata

    I think China "ordered" this, so they can buy cheaper from the falling asian markets.

    November 24, 2010 at 8:05 am |
  3. Turkish Man

    It is just the US plan, to give 'papers' more value...

    November 24, 2010 at 8:47 am |
  4. Zack

    China, South Korea, and the United States give North Korea billions of dollars in aid as well as oil and food. We need to stop 100% of the incoming aid to teach them a lesson. As a soldier stationed in South Korea myself I would rather see political action rather than engaging in an all out war. However, if it comes to that me and my fellow soldiers are very well trained and prepared to do our part.

    November 24, 2010 at 9:24 am |

    There will no such thing as world war 3

    November 24, 2010 at 9:39 am |
  6. Steve Thompson

    Perhaps we, in the industrialized world, have simply ignored and trivialized the threat that Kim Jong-il poses to the people of the Korean peninsula (and other nearby states like Japan) for too long. We regard him as a buffoon, however, recent apparently unprovoked aggression has proved him to have one capability – the ability to throw the world into turmoil. Apparently, we ignore despots at our own peril.

    Alternatively, maybe Kim Jong-il simply got tired of seeing the world pay so much attention to the banking crisis in Ireland.

    November 24, 2010 at 1:09 pm |
  7. George

    Is there anyone that he say to Obama, Mr. President this is not a "Provocative Behavior" if you understand!!! THIS IS WAR.

    How much are your allies and you ready to response? are you frightened of a real war with a real country that you are forced to change meaning of "WAR" with something like "PROVOCATIVE BEHAVIOR"?

    Why am i saying this? because it was not a big deal to invade to Afghanistan that didn't have any GOVERNMENT AND ARMY or attack to Iraq which it didn't have any power after 12 years heavy sanctions while their people didn't have even food for themselves. "DON'T FORGET OIL-FOR-FOOD PROGRAM" for Iraq

    November 24, 2010 at 11:27 pm |
  8. John

    Some Muslim people think that the faults in the world are all because of the U.S. or Israel. (btw. I am not Jewish, but an Asian) They deny this and that (eg.Holocaust, and even the 911 crisis). If you somehow someone elaborately says that Hawaii was never attacked by the Japanese, but staged by the U.S, then some people may actually believe the lie. Although I am Korean, I believe that North Korea is an evil regime that is ruled by bunch of well organized "elite" gang members, have killed its own citizens by huge numbers, sending many to hard labour camp (like a concentration camp) for as petty reason as dropping by mistake, the Kim Il-Sung or Kim Jung-Il's portrait hung on public or private home; it's crazy! Some people also seem to think that the Tsunami that swept Indonesia some years ago which was on our media news report a big time was also done by the U.S.!! If you keep claiming something is this or that by speaking a lie then it could well earn some ears of some people who may be biased already. But if you are being objective and not being biased on such political or geopolitical matters then you don't have to be deceived by some of those so called "controversy" that deny such simple fact as the North Korea attacking South Korea. It is unfortunate that many Muslim people from Turkey, Iran and other Islamic countries have been misled by their religious leaders rhetorics some of which are totally false........ thanks.

    November 27, 2010 at 12:44 am |
  9. Taipan

    North Korea is behaving like a beligerent child. If they want attention they need to act appropriately. What theyneed is a "time out"!

    November 28, 2010 at 6:35 am |
  10. hsr0601

    Pretty sure North Korea = China in the different names of one country, or a military branch & a lapdog.

    November 28, 2010 at 9:57 pm |
  11. Julie Bessy

    Viva la Ratification

    Years of US policymaking have lead to the current economic and political crisis in America. China is the world’s factory. The Chinese are not bad people, but it is unlikely that the American or European economies will be able to compete against the neomercantalism that persists throughout Asia. The Federal government has an obligation to democracy, human rights, and capitalism to ratify NAFTA and the legislation that allows PAC to influence the electoral process. China may be undergoing a period of what is referred to as hypercapitalism, but it has been indirectly driven by US consumerism under the direction of poor legislation through corporate political manipulation. The irony is that the corporations will be left behind in Mainland China through reverse engineering and local state funded start-ups that have the ability to out compete foreign companies because of cheaper labor and the eradication of research and development costs. The American people have no obligation to the Chinese government, and the Federal government’s only obligation to China, and the rest of the world, is to repay its debts. This will never be done, especially when governments around the world are practicing neomercantalism, without American legislation that implements economic protective measures by raising importation taxes on products being sold in the US. The Federal government has an obligation to its citizenry and foreign workers, American and Chinese alike, to protect our national economy without detracting from our human rights, as set forth in the US Constitution, without diluting our quality of life and ability to function as a democratic society. If this means that US citizens are obligated to pay premium pricing for products, it is a short-term inconvenience to protecting the sovereignty of our nation and people. Let it be noted, that since the technological revolution began, Americanism has been seen by nations around the globe as fad. Hypercapitalism is clearly good for the few, but it has, historically, been the middle class which has brought forth the ideas that have allowed businesses to create a global economy. The US Federal Government and European Governments must protect the economic structures that embody ethical capitalism, democratic values, and economic sovereignty.

    December 2, 2010 at 2:02 pm |
  12. icon archive

    Very amusing idea


    September 23, 2012 at 9:59 pm |

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