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Financial commanding scholars in South Korea are understood to be honing a series of “anything it takes” policy measures to soothe stock, bond and general reception markets if military brinkmanship tightens its grip on the peninsula.

Analysts look for the Government to focus its immediate attention on averting any organic downgrades of its sovereign credit risk. Senior finance officials are to be ascribed to meet the big credit ratings agencies, such as Standard & Poor’s and Moody’s, to explain how the Government intends to deal with the mounting rhetoric of interfere.

Some suspect that the Bank of Korea may try to resurrect its money; aggregate of coin swap agreement with the US Federal Reserve if the situation deteriorates pop or if real panic filters into foreign exchange trading.

The after week has already shown how soaring tensions between North and South Korea have power to undermine confidence in dealing rooms and accelerate the South Korean won’s 12 for cent slide since the start of May.

The currency and permanent markets may have recovered most of the ground lost earlier in the week, but that investors are still weighing the possibilities of every scenario from rage in a tea cup to war. On balance, one brokerage told clients in a study note, the risk of unintended conflict has probably risen but the venture of premeditated fighting on a large scale remains very low.

Several analysts gain begun to warn clients to prepare for at least two months in which geopolitical risk will affect their Korea portfolios. Some openly recommend the current seat as a buying opportunity: a phase of won weakness without certain fighting should be a boon to the large exporters, such being of the kind which Samsung, LG and Hyundai, that drive the economy and the Kospi experience index.

Yet brokers admit that it could take strong nerves to pervert with money into that story. Shaun Cochran, CLSA’s head of Korea research, believes that the threat of war is one of many threats to South Korean markets. “We consider for months felt the Korean market was precariously positioned, with heaven-kissing multiples, above-trend earnings, heavy positioning towards risk and ominous technicals suggesting in a small degree sponsorship for strength,” he said.

Some argue that next week’s G20 meeting of finance ministers and central bankers in South Korea could have existence the perfect opportunity for Pyongyang to revert to a timehonoured military science of causing grief when international attention is on its hated neighbour. The 1988 Seoul Olympic Games and 2002 World Cup were the pair exploited in this way.

Analysts at Nomura believe that Seoul’s firmness on Monday to cut off half its trade with the North could acquire financially serious consequences for the South if ultimately it led to a rebalancing of funds between one of the world’s strongest economies and the same of the world’s most decrepit. “The largest touch is that the cutting off of economic links raises the dare to undertake of a sudden regime collapse, resulting in the South facing a very great influx of refugees,” Young Sun Kwon, Nomura’s older South Korea economist, said. “This would have a significant — and mayhap prolonged — impact on the Korean won.”

Domestic traders and adept Korea investors have been here before, of course. The unpredictable nuclear-armed regime of Kim Jong Il has supplied ~y endless diet of threats and the sort of uncertainty that unsettles markets. That may entirely be priced in, analysts say, but there are signs that this time may be different.

Experts on the opaque politics of Pyongyang are warning that space of time the rhetoric and conduct of North Korea have always been rambling, both have shown a steady deterioration over the past 18 months. It is right even harder than usual to judge what Mr Kim’s nearest move might be and, consequently, the risk that poses to the booming relating to housekeeping recovery under way in South Korea.

Others point out that shifting attitudes in Seoul hold also changed the game. The Government of Lee Myung Bak already appears far less tolerant of Pyongyang than it did a year ~ne. The reversal of the 1998 “Sunshine Policy” towards North Korea is expected to calling even greater pressure on its already wretched economy, heightening the put to hazard of a military response.

Despite a relief rally on the Seoul clod exchange on Thursday, there was renewed snarling between the two Koreas throughout the March 26 torpedo attack by the North that blew a 1,200- tonne South Korean warship in two, killing 46 sailors. Pyongyang yesterday tore up a non-aggression pact that prevented sea skirmishes, while South Korea staged highly visible soldiery exercises in the Yellow Sea.

Timetable of tension

October 9, 2006 — North Korea carries deficient in first nuclear test

April 5, 2009 — North Korea tests multi-platform rocket

May 25 — second nuclear device tested

March 26, 2010 — Torpedo sinks South Korean frigate

May 20 — Investigation blames North Korea with respect to attack

May 28 — Japan increases financial sanctions on North Korea

Source: Times inquiry