North Korea's Hint at 'Military Provocation' Casts Gloom Over South Korea Stocks

Ananti, Hyundai Group, and Others Fall in a Row... Defense Stocks on the Rise

[Asia Economy Reporter Minji Lee] As North Korea mentioned the possibility of military provocations in retaliation for the distribution of anti-North leaflets, stocks related to North Korea all showed weakness.

[Image source=Yonhap News]

According to the Korea Exchange on the 15th, Ananti, a domestic luxury resort development specialist company, fell about 13.18% over the past 10 trading days. As of 9:30 a.m. on the same day, Ananti also dropped about 3.5%. Ananti received the operating rights for Geumgangsan from the government in 2005, completed golf and resort facilities, and sold memberships. Due to expectations that Geumgangsan tourism could be the first to resume with the expansion of inter-Korean economic cooperation projects, it was traded at around 30,000 won last year, about 240% higher than now.

Despite the domestic stock market continuing its upward trend this month, stocks related to North Korea showed a sharp decline. This was due to growing concerns that inter-Korean relations could deteriorate after Kim Yo-jong, First Deputy Director of the North Korean Workers' Party, cited the South Korean government's insufficient measures against the distribution of anti-North leaflets and mentioned the closure of the inter-Korean joint liaison office, termination of Geumgangsan tourism, complete dismantling of the Kaesong Industrial Complex, and nullification of the September 19 inter-Korean military agreement.

Hyundai Construction (-5%) and Hyundai Elevator (-9%), part of the Hyundai Group which holds key inter-Korean cooperation business rights, also plunged sharply. Pesticide manufacturer Kyungnong (-13%) and fertilizer company Jobi (-9.5%) also declined. Owners of the Kaesong Industrial Complex such as Joheunsaramdeul (-10.14%), JSTINA (-12.3%), and Jaeyoung Solutec (-11.2%) also fell.

On the other hand, as concerns grew that military clashes could occur in border areas following North Korea's declaration to nullify the September 19 military agreement, defense-related stocks rose. While North Korea-related stocks fell, VICTEK rose about 33.4%. SPECO (13.2%) and Hunid (9.9%) also recorded strong gains.

In the securities industry, it is expected that changes in North Korea's stance will not lead to a trend decline in the domestic stock market. Although continuous attention should be paid to the issue, it is judged that it is difficult for provocations exceeding expectations to occur because the practical benefits North Korea can gain from the international community after strong retaliatory measures are not significant.

Regarding North Korea-related stocks, expectations have declined significantly since 2018, and it is forecasted that additional rises will be difficult unless performance improves substantially. Choi Yoo-jun, a researcher at Shinhan Financial Investment, said, "Looking at the current stock price levels of stocks that were named as inter-Korean cooperation stocks among North Korea-related stocks, they remain at historically low levels. The period when stock prices rose on expectations alone is over, so for a rebound to occur again, concrete figures need to be presented."