DEUTSCHE BANK: North Korea Is Starting To Affect Markets

Lately, we've heard a lot of blustery rhetoric out of North Korea.

The problem is that we're so used to hearing a lot of blustery rhetoric from North Korea that it's usually hard to take seriously, and it's usually brushed off by the international community as more of the same.

Today, North Korea blocked South Korean workers from entering the shared industrial complex in the town of Kaesong, which lies on the border between the two countries. It's the only inter-Korean economic project left in existence, and North Korea hasn't moved to block entry like that since 2009.

Apparently, the latest developments in the Korean conflict are still not enough for international markets to worry about.

However, they do appear to be taking a toll on South Korean markets, according to Deutsche Bank's Jim Reid.

In a note this morning, Reid writes:

Turning to Asia, the escalating tensions between North and South Korea continue to dominate market headlines overnight. The Korean won dropped to a six-month low against the Greenback after the latest news that South Korean workers were refused access to an industrial park (Gaeseong zone) jointly run between the two countries for the first time since 2009.

Demand for South Korean assets has taken a backseat ever since North Korea’s ‘state of declaration’ over the weekend and its decision to restart the Yongbyon nuclear site, which was shut down by the February 2007 disarmament accord. Korea’s 5-year sovereign CDS has come off its recent wides but still about 5bp wider on the week.

If markets there are starting to take notice, it could be a sign that investors should at least keep one eye on this situation going forward.