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South Korea takes nuclear threat in its stride

South Korea

The border between the two Koreas:
bellicosity in the north has failed to
dampen investors' interest in the south

When a country is threatened with total destruction in a sea of fire, you'd think that international investors would be rushing to sell. And when the state voicing the threat is as unpredictable as North Korea, pulling out all investments would seem perfectly logical. However, since North Korea began beating its chest on October 16, investors have kept their nerve and South Korea has yet to suffer a rush of exiting investors.

"It's like living on the Saint Andreas fault. There's going to be a tremor every now and then and you know that one day it could fall into the sea. But you play down the risk and live with it," says Bill Belchere, JPMorgan's chief economist for Asia, sitting comfortably in Hong Kong.

The Korea Composite year to date has only slightly underperformed its regional and global peers. In January, it fell 12% compared with Taiwan, which slipped 9%, and the Philippines, down 10%. The Korean fall follows a 16% rally between October and December 2002, when North Korea became more bellicose and admitted to a secret nuclear programme.

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