Sat, Apr 29, 2017 - Page 10 News List

S Korean investors dismiss N Korea threat

‘CHEST THUMPING’:In the event of a supply disruption, large customers of memory suppliers might trigger ‘allocation’ to get more, sparking ugly fights among giants


Growing tensions with North Korea should worry global electronics firms such as Apple Inc as they source key parts from South Korea, but investors are brushing off such concerns and snapping up shares in key exporters, heartened by robust earnings and big investment plans.

US President Donald Trump said on Thursday in an interview that a major conflict with North Korea is possible in the standoff over its nuclear and missile programs, though he would prefer a diplomatic resolution.

South Korea, a US ally and home to major electronics parts makers such as Samsung Electronics Co, LG Display Co and SK Hynix Inc, would be particularly vulnerable to any military attack from its northern neighbor.

Any interruptions to operations could significantly disrupt global manufacturing of smartphones, televisions, computers and tablets. South Korea supplies more than half of components such as memorychips and flat screens.

Despite escalating tensions, investors are pouring money into South Korea’s financial market, and companies are flocking to the stock market to raise billions of US dollars.

“This is mainly just chest-thumping behavior on the part of North Korea and President Trump, but I don’t think it will be anything more than that,” said Geoff Pazzanese, a senior portfolio manager at Federated Investors Inc in New York.

Pazzanese, who owns large positions in Samsung and Hynix, said he would be a buyer if the market sold off as a result of a North Korean nuclear test, partly because the Trump administration has reaffirmed its military support for South Korea.

Seoul’s stock market has climbed 9 percent so far this year to near-record highs, helped by strong earnings by major exporters including Samsung, which yesterday rose 3 percent to a lifetime high after reporting its highest profit in more than three years.

Earlier this week, Hynix and LG Display, both Apple suppliers, reported record quarterly profits and sounded upbeat for the remainder of the year.

“The tension might mean some sentimental risk more than fundamental risk,” Singapore-based Janus Capital Group equity analyst John Teng said. “It might potentially push their customers to restocking earlier, in terms of component inventory. Memory suppliers, they are very disciplined in terms of capacity expansion.”

Allianz Group chief economic adviser Mohamed A. El-Erian yesterday told the Reuters Global Markets Forum that investors should take a more critical look at their exposure, but had been conditioned to set aside such risks.

“And they have been rewarded well by markets for doing so,” he added.

South Koreans have grown used to the threat of conflict with the North after decades of bellicose rhetoric from Pyongyang, and the companies remained unruffled yesterday.

“We think talk of conflict is speculative, and we do not have any plans to react to the current situation,” LG Electronics Co said in a statement.

Hyundai Motor Co, the nation’s top automaker, said it had detailed contingency plans to ensure business carried on under various situations, but could not disclose them.

Any military conflict on the Korean peninsula could have a dramatic effect on the memorychip market in particular, as Samsung’s and Hynix’s main operations are clustered in South Korea.

The pair control nearly 50 percent of the flash memory market and almost two thirds of DRAM chips, widely used in computers, making it almost impossible for customers to find alternative supplies quickly.

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