Market Leader informed
A war is a nightmare for business and investments. That is why the conflict between North and South Korea has already provoked downtrends at the world markets.
The futures contracts of the US and European companies are currently declining in value. Asian markets are seeing downfall. MSCI Asia Pacific index indicating the quote dynamics of Asian-Pacific enterprises (except Japan) has lost 1.9%. On the contrary, USD is strengthening versus major currencies as the US currency rate initially takes into account the risks connected with the region. Thereby, before the armed conflict USDJPY was around 83.28. Instantly after the exchange of fire at the border between North and South Korea USDJPY reached 83.72. USD has also recovered against the Australian Dollar. Previously AUDUSD was traded at 0.986. Now it has reached 0.97. The South Korean Won has suffered most of all. Over the time of the conflict USD has gone from 1125 up to 1180 won per 1USD. Experts warn that any aggravation of the conflict may have a catastrophic impact on the rating of South Korea.
Once again the world is on the verge of a serious disaster, which may directly affect exchange rates. Some journalists even start expressing concerns over a possibility of World War III. Of course, it is the worst possible and undesired for everyone and consequently the least probable scenario. However, if the situation goes down to some serious armed conflict the entire world will wish it had never happened.
So, what really happened? Angry at South Korea’s refusal to halt military drills near their sea border, on Nov 23rd North Korea shelled the island of Yeonpyeong, and Seoul responded by unleashing its own barrage from K-9 155mm self-propelled howitzers and scrambling fighter jets. Two South Korean marines were killed in the shelling that also injured 15 troops and three civilians.
So what was the instant reaction of both sides? The president of South Korea Lee Myung-bak ordered to respond by striking multiple blows in case of any further provocations.
In their turn the North Korean authorities put the blame on South Korea, saying that its combat ships violated the sea borders. So the shelling was just an answer to South Korean aggression. North Korea warns that it will resume shelling in case the borders are violated again. The world powers instantly urged the countries to stop the strikes. The USA was the first one to put the blame on North Korea. The EU, Great Britain and Russia joined. China called for peace without specifying the aggressor. The Japanese government instantly created an anti-crisis staff, Naoto Kan ordered to take all the steps necessary to ensure the security in the country.
The brief history of the conflict
During the 1st part of the 20th century all the Korean territory was a colony of the Japanese Empire. In August 1945 the Soviet Army defeated the Japanese Kwantoon Army an entered the peninsula from the North. In September 1945 the US army entered the South. The allies agreed to divide the territory in 2 zones. The 38th parallel became the border between them.
Both sides remained at the peninsula, preventing Korea from becoming a single state. In 1947 the UN held elections in Korea, in the South they were held in May, in the North – in September. It happened so that different political powers won the elections in various parts of Korea, which led to the creation of two states: North and South Korea. On June 25th 1950 they launched a war between each other.
The US and 15 other states (GB, Canada, Australia and others) became the allies of South Korea, while the DPRK was supported by the USSR and China. The armed conflict might have turned into World War III, but thanks God, it didn’t happened.
One year later (in June 1951) the front stabilized at the 38th parallel, making the sides return to the initial border. The clash lasted for 2 more years. On July 27th 1953 the sides signed a cease-fire agreement. Formally the war between North and South Korea is not over as the sides have only promised to create a 4-mile demilitarized zone at each side of the 38th parallel.
Ever since the South and the North have been disputing over the sea borders. The so-called Northern Limit Line (NLL) introduced by South Korea was not recognized by the North. Pyongyang constantly demands to reconsider it. It should be noted that the region is rich in fish and blue crab. That is why the disputes over it will be over only when the 2 Koreas are united into a single country.
The first military clash since 1953 took place on June 15th 1999 when the South destroyed a North Korean combat ship killing some 30 sailors. North Korean ships were frequently seen violating the NLL, so the South decided to apply force.
After the last bloodshed the DPRK hasn’t still recognized the NLL, urging to reconsider it. However since then the violations have become less frequent.
On June 29th 2002 there was another clash near the island of Yeonpyeong: 2 Northern combat ships fought 2 Southern ones. As a result, a Southern ship was destroyed while a Northern one was set on fire.
In October 2007 the problem seemed to be solved by the leaders of the two countries at the Korean summit. They agreed to create a zone of joint fishing with further perspective of creating a zone of peace. However, after there was a change of power in Seoul the situation worsened again. In 2008 Lee Myung-bak became the President of South Korea. He aggravated the relations with the North, especially in connection with its nuclear program. Of course the US completely supported the South. Since then the multiple achievements concerning the Korean problem have been up in the air.
On Nov 10th 2009 there was another conflict bringing casualties to both sides.
The confrontation reached the peak on March 26th 2010 when in the Yellow sea a South Korean corvette mysteriously sank at the NLL bringing 46 deaths. The international committee (without any representatives of North Korea) put the blame on the DPRK saying the corvette had been hit by its submarine. After that the international sanctions against North Korea were toughened while the South Korean and American military forces held big-scale war games close to the NLL. In its turn the North warned it could make a preventive strike. The US again added some fuel to the fire by announcing that the DPRK was getting ready for another nuclear test, which made South Korea and Japan worry about it. Seoul put its military along the NLL on stand-by, which was treated by the North as a threat.
Thereby, all the armed conflicts between North and South Korea has recently been taking place at sea, around the same territory, so they are determined by economic interests rather than any other ones. It is a typical frontier dispute. However it is intensified by the Northern nuclear-weapons program and the US army located in the South.
So what could be the reason for the latest aggravation?
Now the world community is discussing several possible reasons for the last clash. Masterforex-V Academy experts have sorted out the most interesting ones:
1. South Korea really did its best to provoke the DPRK into showing signs of aggression. It may be beneficial for Seoul I terms of making the world be concerned about North Korea and its nuclear program. The South is spoiling for a fight. It is currently leading a big-scale info campaign against its communist neighbors. It would be sufficient to mention the warning about possible terror attacks in advance of the G20 summit. In other worlds, one shouldn’t believe everything that comes from Seoul.
2. On Nov 20th 2010 the New York Times published an article reporting that the DPRK had opened a modern uranium-enrichment plant. Washington instantly expressed deep concerns over that. It coincided with the joint military games in the Yellow sea (South Korean and American forces – over 70.000 servicemen). North Korea probably thought that it was an assault and made a preventive strike, shelling Yeonpyeong, the location of one of the biggest South Korean military bases.
Who will suffer from the conflict first of all? According to Masterforex-V Academy, it is:
*First of all, the inter-Korean dialog. The Sunshine Policy was the foreign policy of South Korea towards North Korea until Lee Myung-bak's election to presidency in 2008. However the policy eventually failed to lead to the expected results. The nuclear program of North Korea finished it.
* The inter-Korean economic cooperation, which has been developing fast over the last couple of years until now. For example in 2009 the volume of the bilateral trade reached $1,666B. Over 200 South Korean enterprises trade with the DPRK on a regular basis. Until now the creation of the Kaesong industrial zone has remained the biggest joint project together with merging the railways and highways of the North and South. However, currently everything is under threat.
*Asian stock market. During the last inter-Korean face-off in spring 2010 the stock quotes in Seoul lost almost 4%, which led to massive sales while the Tokyo Stock Exchange Composite Index declined by 3%, making other global markets show weakness as well. Now the situation is repeating. Investors are afraid of big-scale war in the Far East and begin to buy up the US treasuries while getting rid of the shares of those Asian companies who work at risky markets (now they are in the red zone). The most considerable stock downfall was seen in Hong Kong and Shanghai (2,4% and 1,9%). The shares of the Central Bank of Australia lost 1,8% in value. According to experts, if the inter-Korean conflict has a tendency to escalate, global markets may lose 3 to 5% in value.
*All the national currencies of the Pacific region, apart from USD (expect the world’s major currency). USD gained in value while EUR declined. In a single day the US currency considerably recovered against the Japanese Yen, Australian dollar and especially South Korean Won.
Thereby, the escalation of the inter-Korean conflict may cause a serious Asian stock market collapse, followed by the outflow of the capital from Asia to America and Europe, making USD strengthen and crude oil decline in value. At this point nobody dares to predict the further succession of events. That is why investors from around the world are actively watching news while being cautious and waiting for the suitable moment to invest.
Masterofrex-V experts together with “Market Leader” offer you to answer the following question in order to estimate the situation in a more objective way:
What may be the result of the inter-Korean conflict?
*nothing serious…
*the mid-term downtrend of Asian currencies and indexes
*another wave of the global economic crisis
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