North Korea said it would halt its nuclear and missile tests and dismantle its nuclear test sites in a shift of policy focus to the economic area. The announcement comes ahead of a North Korean meeting with South Korea and the United States (US).
Market watchers say the North Korean decision could reduce the uncertainty associated with geopolitical risks in the South Korean economy. This move raised expectations among local investors with tension in the Korean Peninsula.
Tensions between the two countries are cited as the main reason for low value local stocks over the last few decades or so-called 'Korean Discount' events. Experts say the atmosphere of tension reduction could boost South Korea's rank by reducing North Korea's risk.
For example, the possibility of war on the Korean peninsula and suddenly changed in the Pyongyang regime. "(The denuclearization pledge of North Korea) could have a positive impact on the South Korean economy, due to the low tension that is a stable factor in politics and security," said Yonsei University Economic Professor Kim Jung-sik as quoted by Yonhap News on Sunday (22 / 4).
"This could provide an opportunity to simplify the 'Korean Discount' and promote foreign investment here," he said.
Earlier in November, Moody's Investors Service reiterated the highest Aa2 rating for South Korea. But the possibility of North Korean provocation as a risk of decline for the fourth largest economy in Asia.
Another ranking agency named Fitch maintains its rank for South Korea on AA1. Fitch noted North Korea's risk of exacerbating investor sentiment that could drag the stock market and weaken the value of local currencies.