Two South Korean marines died and at least 12 were wounded in an artillery attack reportedly fired from the North on Tuesday.

The market was initially reacting fiercely. Stocks and U.S. futures dropped while the dollar and Swiss franc strengthened. Fortunately, the tension appeared to have calmed.

Korea’s KOSPI was among the first to open, and after initial losses recovered to close the day down a
marginal 0.15%. China-related markets finished in the black after their > 2% losses of Tuesday; the Hang
Seng gained 0.6% for the day.

The Korean won also recovered after dropping 3.8%. Korean sovereign credit-default swaps rose 3 basis points to 107.5 basis points (RBS).

It is too early to forecast the potential effects, but investors should note the tension is not the first time. Market will be highly volatile but the major trends should be intact unless there is real military action, which is, in my opinion, very remote.

Both China and the US are urging calm. They will most probably do their best to resolve the issue, which is to the best interest of both.