MARKETS SPECTATOR: Sweating a Korean barbecue

North Korea is threatening the markets... along with everyone else. Until the situation is calmed the minerals market will be fretting.

If an enormous risk is in plain sight but cannot be quantified should it be ignored? That is precisely what stock markets in Asia-Pacific seem to be doing amid escalating tensions driven by boy dictator, North Korea’s Kim Jong Un.

Past threats of war by North Korea had an “ephemeral” effect on South Korea’s stock market, according to Moody’s Investors Service. Nevertheless there is a wide spread perception that South Korean shares labor under a “discount” because of the regime north of the 38th parallel.

South Korea is Australia’s third-largest export market. In 2011 Australia sold $23.4 billion worth of mostly minerals to a nation of 50 million people.

In 2012, Santos signed a $527 million Northern Territory gas contract with South Korean conglomerate SK Group. Korea Gas Co has a stake in a Santos gas development out of Gladstone. South Korea’s Posco, the world’s fifth-biggest steelmaker by output, last year poured $1.6 billion into the Roy Hill iron ore project in Western Australia. Posco also made an unsuccessful bid in 2012 for steelmaker and iron ore miner Arrium.   

South Korea accounts for about of 10 per cent of Rio Tinto’s sales. It is the company’s third-biggest customer after China and Japan. BHP Billiton says it does not break down its sales on a country-by-country basis. But one may assume the “land of the morning calm” is just as much of an important market for the “big Australian” as it is for Rio Tinto.

The weekend has brought no relief to an atmosphere of cold war confrontation on the Korean peninsula. Without tensions being dissipated the situation could spiral out of control. That would be a tragedy not only for Korea but also for markets.