Shares in Asia and Europe steadied yesterday from a sell-off following North Korea’s deadly shelling of a South Korean island, but tension on the divided peninsula supported safe-haven assets such as gold and Japanese government bonds.
The euro clawed away from a two-month low, but remained on the back foot amid concerns that a rescue package for Ireland would not be enough to stop a debt crisis from picking off more of the eurozone’s most heavily indebted nations.
European stock markets rose from a six-week closing low, with the FTSEurofirst 300 up 0.4 percent in early trade. London’s FTSE 100 rose 0.7 percent, Germany’s DAX 0.5 percent and France’s CAC 40 0.6 percent.
While Tuesday’s artillery attack was one of the most serious incidents on the peninsula since the end of the Korean War in 1953, market reactions to North Korean saber-rattling or outright aggression have tended to be short-lived.
The Korean won recouped most of its early losses to finish down around 0.5 percent on the day and South Korean stock and bond futures rose, indicating longer term investors saw a chance to snap up bargains.
Seoul’s benchmark index finished down only 0.2 percent, off earlier lows, with foreign investors net buyers of stocks.
“Korea trades at a discount to the region on a valuation basis ... If you look back at the last five years when we’ve had scares, they were all seen as buying opportunities,” said Todd Martin, Asia equity strategist with Societe Generale. “The rule among hedge funds and long-only funds is that you let the market sell off and watch for your entry point.”
Japan’s Nikkei share average fell 0.8 percent, retreating from a five-month high and catching up with regional markets after a break for a public holiday on Tuesday.
MSCI’s broadest index of Asia Pacific shares outside Japan was flat, with gains in Hong Kong, Shanghai and Singapore offsetting falls in Australia and South Korea.
Japanese government bond futures bounced from a two-month low, with the 10-year benchmark up 0.14 point.
“Tensions in Korea are debt-positive in the short-run, spurring investors away from riskier assets,” said Koichi Ono, a senior strategist at Daiwa Securities Capital Markets.
Currency markets remained more focused on Europe, where Ireland’s beleaguered coalition was due later in the day to set out a four-year plan to save 15 billion euros (US$20 billion) through spending cuts and tax increases.
Now investors fear a debt crisis that had already swamped Greece will spread further. The premium on Spanish government bond yields over German benchmarks rose to a euro lifetime high on Tuesday.
“Perhaps the market may be already expecting Portugal to ask for some sort of help. But if Spain also needs a rescue, that would be a big blow to the euro,” said Ayako Sera, market strategist at Sumotomo Trust and Banking.
The euro slumped 1.9 percent on Tuesday to as low as US$1.3359 and was trading around US$1.3390 yesterday. A downgrade for Ireland from ratings agency Standard and Poor’s did not dent the euro further, indicating it may have found support for now.
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