Shares slide on North Korea N-tests

Concern in Asia over the testing of a nuclear bomb by North Korea sends markets in the region reeling

BY Euan Stuart LAST UPDATED AT 09:56 ON Tue 26 May 2009

Markets in Asia slipped lower today in the wake of  the underground testing of a nuclear device by North Korea. On Monday South Korea's Kospi Index dived over six per cent after the news before recovering nearly all its gains.

But as further details emerged of its neighbour's launch of three short-range missiles yesterday, the measure slumped another 2.4 per cent today.

After a report by Yonhap News in Seoul suggested that there may be more missile tests, the UN Security Council condemned the moves as a "clear violation" of international treaties, and said it would vote on a resolution, which might include sanctions, later in the week.

US president Barack Obama, meanwhile told reporters that he “will work with our friends and allies to stand up” to North Korea.

Other markets in Asia reacted negatively to the falls in South Korea, with Japan's Nikkei 225 Stock Average drifting off 0.2 per cent and Taiwan down 0.8 per cent.

The region's MSCI Asia Pacific Index was slightly lower overall, although it showed signs of improvement in late trading. When North Korea tested its first nuclear weapon in October 2006, the MSCI Index fell 0.5 per cent, before recovering 0.1 per cent the next day and finishing the month up 2.9 per cent.

Nevertheless concerns persist that there will be further weakness in the region, particularly in light of recent strong performance.

And there are worries that any weakness may spread to Western markets as economic figures disappoint, with the US set to report some key numbers this week including home sales and consumer confidence.

WHAT THEY ARE SAYING
Winson Fong, managing director at SG Asset Management in Hong Kong, in the Daily Telegraph: "We seem to be stuck at the current levels. The market has rebounded so much we're going to need major good news to go higher or major bad news to persuade people to take some profits."

John Foley, on Breakingviews.com: "Nuclear tests to the north and the death of an ex-president barely ruffled South Korea’s markets. The events may not derail the nation’s tentative stabilisation, but they do have some troublesome implications."
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