Moody's: South Korea unaffected

Moody's Investors Service said that South Korea's credit fundamentals are relatively strong and are not likely to be affected by the risks associated with North Korea's nuclear weapons test on Monday even as tensions rise and the stability of the North is strained by likely new sanctions.

"While those risks remain contained and are already incorporated in our ratings, the test raises the issue of whether diplomatic efforts can ensure geopolitical stability on the Korean peninsula. While a military reaction is highly unlikely, sanctions against North Korea may be tightened considerably," Moody's analyst Tom Byrne said in an agency rating.

He said the nuclear test by North Korea has also undermined a rationale for the engagement of the North by China and South Korea and could lead to a curtailment of trade and investment relations, further isolating the Pyongyang regime.

In contrast, Moody's said Seoul has a sound fiscal position and its external position has strengthened considerably.

"The greatest credit risks to South Korea would arise from a military confrontation or a collapse of the North Korean government that requires international intervention to secure the North's stockpile of nuclear and non-nuclear weapons of mass destruction," Byrne said, but in the agency's opinion, a coordinated, cooperative international response to a collapsed North Korea would present minimal downside risks to South Korea.

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