Impact on ‘Korea Discount’
Seoul and Pyongyang agreed to hold their third summit late next month. In addition, the North clarified its will to denuclearize the Korean Peninsula, saying that it is willing to have a dialogue with Washington. South Korea’s credit rating is expected to benefit from such a drastic improvement in inter-Korean relations.
At present, South Korea’s credit rating is Aa2 (third-highest) in Moody’s, AA (third-highest) in S&P, and AA- (fourth-highest) in Fitch and the United States, Germany, Canada, Australia, Singapore and Hong Kong are above South Korea.
In October last year, Moody’s maintained its credit rating and credit rating outlook for South Korea at Aa2 and Stable, saying that the rating can be raised once the geopolitical risks in the Korean Peninsula are removed. Likewise, Fitch maintained its rating and outlook at AA- and Positive in October, saying the geopolitical risks are continuing to affect South Korea’s credit rating.
Despite the improvement in inter-Korean relations, there are still some remaining tasks for inter-Korean economic cooperation to be resumed. First of all, financial transactions with North Korea are currently banned in the wake of the May 24 measures and the UN resolutions on North Korea.
“Inter-Korean economic cooperation is expected to be resumed in the near future,” said the Hyundai Research Institute, adding, “Additional economic cooperation will become possible if North Korea’s will for denuclearization appeals to Washington and leads to a dialogue between Washington and Pyongyang, and then the South Korean economy and stock market will be able to benefit.”