Further North Korean Provocations

November 23, 2010

Overnight, North Korea attacked a civilian-populated South Korean island near the disputed border, raining artillery fire down upon Yeonpyeong island for a period of hours. Two South Korean soldiers were killed and at least 14 were wounded. Press reports say that around 70 homes were on fire, with images playing on news broadcasts around the world.
In response, South Korea scrambled fighter jets and returned artillery fire. As usual, there is no news from the North on casualties, ramifications, nor on the impetus for North Korea's decision to shell Yeonpyeong.
The U.N., the U.S., China and nations around the world have condemned the attack. Following the North's March sinking of the Cheonan, a South Korean warship, tensions had already been high. This serves to only destabilize the situation further.
The incident marks the first time the North has attacked civilian territory in South Korea, making it more serious than previous incidents like the sinking of the warship last March.
NATO analysts feel that the North may be trying to extract concessions from countries that opposed its nuclear program. They also feel that the provocation will not likely lead to war-as neither side wants a prolonged military engagement.
Further, the attack will likely have limited impact on South Korea's economy, stated South Korean Finance Minister Yoon Jeung Hyun, Yonhap reported. As evidenced by today's volatile markets, the incident could cause an increase in volatility in the financial and foreign exchange markets in the short term. But, the Finance Minister expects conditions to stabilize relatively quickly.
We do not see the need for immediate action in client portfolios, as technical and fundamental indicators continue to portend higher averages. We will, however, be on the alert for any escalation of tensions that may warrant our taking proactive risk management strategies in order to avoid protracted losses.
When tensions lessen, we may even see further opportunities within specific Asian markets in which we are already invested. Stay tuned...

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