Geopolitical risks in the Korean Peninsula, caused by the North Korean nuclear test and long-range rocket launch, will not have a significant impact on the South Korean economy, a Seoul financial regulator said on Monday.
Finance Services Commission vice chairman Jeong Eun-bo said risks from inter-Korean relations alone would not aggravate the risk on the South Korean economy as seen in the past, Xinhua news agency reported.
The joint US-South Korea annual war games, which North Korea has denounced as a rehearsal for northward invasion, started on Monday, but their impact on South Korea's economy will be limited, Jeong said.
The joint drills, code-named Key Resolve and Foal Eagle, are scheduled to run through April 30, mobilising the largest-ever military forces from Seoul and Washington that include an array of US strategic assets such as a nuclear-powered aircraft carrier and a nuclear-capable submarine.
In response to the drills, North Korea warned of "pre-emptive and aggressive nuclear strikes" against South Korea and the US mainland, calling the war games as "undisguised nuclear war drills".
Tensions mounted on the Korean Peninsula as North Korea tested what it claimed its first hydrogen bomb, the fourth of its nuclear detonations, on January 6 and went ahead with the launch of a long-range rocket on February 7, which was condemned as a banned test of missile technology.
Foreign funds flowed out of the South Korean financial markets amid the heightened geopolitical risks, but the foreign capital outflow was in line with the global market trend, the FSC vice chairman said.
Jeong said that the foreign investors sold South Korean bonds as a part of deleveraging in preparation for potential liquidity risks, while offloading local stocks amid the deepening risk-averse sentiment.
However, the local bond sell-off reduced significantly and foreign capital began to flow into the South Korean stock market recently, Jeong added.
The main Kospi index inched 0.11 percent up on Monday, and South Korea's currency went up to close at 1,201.4 won per dollar.
