South Korea Pledges to Stabilize Markets Amid Geopolitical Scare

South Korean policy makers pledged action to stabilize financial markets amid tension with North Korea that is raising concern over capital outflows and volatility.

The Bank of Korea said Monday that efforts to calm markets are important, adding that it will closely monitor external risks and come up with measures to mitigate them if needed.

The two Koreas continued a marathon session of talks Monday aimed at lowering tensions across their heavily fortified border. The Finance Ministry said over the weekend it will “preemptively act” if market instability spreads.

“The stand-off between South and North came when uncertainties over China’s growth were already raising market volatility,” said Oh Suktae, a Seoul-based economist for SG Securities Co. “There’s not much policy makers can do if there is an all-out war. That negotiations are going on probably means neither of the Koreas wants more tension.”

The won fell to 1,199.68 per dollar earlier Monday, the weakest since October 2011. The currency traded 1,197.84 as of 12:49 p.m. in Seoul, amid speculation that Korean authorities intervened by selling dollars. Park Jun Seo, an official at BOK, declined to comment on the matter. The Kospi index fell for a sixth day, headed for the lowest close since July 2013.

South’s President Park Geun Hye on Monday asked officials to monitor markets and prevent “nervousness” related to North Korea risks from spreading.

Expectations for an interest rate increase by the Federal Reserve and uncertainties in emerging market economies including China have lessened the appeal of South Korean assets to foreign investors. Overseas funds cut holdings of both local bonds and equities last month, data from the financial regulator show. A man sitting on a wheelchair looks at a television screen showing an image of Kim Jong Un, leader of North Korea, center, during a news broadcast on North Korea's exchange of fire with South Korea at Seoul Station in South Korea.