Is the Stock Market Volatile Or Just Gullible?

On October 9th, 2006, economic tremors rippling from the news of a nuclear missile test sent Asian currencies sinking in financial quicksand. The South Korean market, Asia's fourth largest, was brought to its knees as share prices plunged 2.6 percent, posting dollar-buying at 963 from 949 four days prior.

The Korean Central News Agency, the official North Korean information media, reported of a successful underground nuclear testing of its government. Australia and South Korea were quick to confirm seismic signals of 3.6 tremors at the alleged time of the North's test did occur. It was further stated that it was of no natural occurrence. Such a magnitude would be equivalent to a TNT explosion of 550 tons, said the Korea institute of Geoscience and Mineral Resources.

Four days after that, the South Korean stocks gained some footing with share prices 1,348.60. Wary of the developments after the United Nations tighten sanctions on the North, investors are adopting a wait-and-see policy while they slightly distance themselves through hedge funds.

South Korean foreign trade began to pick up after its dependence on U.S. aid in the 1960's. In 1966, exports began earning $250 million. In the 1980's, its economy expanded rapidly to become a leading shipbuilder, a major producer and exporter of automotive and consumer electronic parts. By 1991, earnings through exports reached to $72 billion.

In the same year, the signing of a historic Basic Agreement that featured a non-aggression pact and allowed for exchange programs between the two Koreas. This was the break major investors to the South were waiting for. The magnificent development of the South Korean economy made its physical proximity to the North almost a non-issue.

In spite of the condemnation hurled at North Korea, not all remain convinced that a nuclear underground testing occurred. Japanese Prime Minister Shinzo Abe, speaking in a summit in Seoul at that time, needed more confirmation; the U.S. Geological Survey, contrary to South Korean finds, had no way of determining whether the recorded seismic activity came from an atomic explosion or a natural earthquake.

Before this, a Japanese newspaper, the Nihon Keizai, reported that North Korea test-fired several missiles, which included a long-ranged ICBM that had the power to reach U.S. shores. It was interesting, however, that the newspaper went on the print the story "without saying how it got the information." Nonetheless, as fast as the North missiles were shot to the air, around five trillion won, or $5.23 billion, of mostly short-term foreign capital evaporated from South Korea.