Seoul’s stock market is expected to be highly active this week, with investors optimistic about the widely tipped momentum following the Washington-Pyongyang summit on Tuesday.

All the while, monetary policymakers are tense over expected rate hikes by the United States and European Union later in the week.

While guarding against excessive optimism, market observers suggested that the eased peninsular tension would encourage foreign investment by leading to a stronger won.

“Should the US-North Korea summit pave the way to an end-of-war declaration and a peace treaty, geopolitical risk will be significantly reduced and this will encourage foreign investment in the domestic stock market,” said Ahn Jin-ah, researcher at BNK Securities.

Such optimism was backed by US investor Jim Rogers, who projected that the Singapore summit will offer a new momentum to South Korea’s stock market and economy.

“Synergy could be created by combining South Korea’s capital with North Korea’s young manpower and abundant natural resources,” the hedge fund expert said in a meeting with Samsung Securities CEO Koo Sung-hoon.

The two financial chiefs met in Singapore last Friday to discuss the prospects of economic development in North Korea after Tuesday’s summit.

Many others, however, remained more cautious over the direct impact that the Trump-Kim summit may have on the market, pointing out that the initial market expectations have already been reflected in the wake of the inter-Korean summit in late April.

“What we know so far about the inter-Korean economic cooperation is the possibility of a railway and road construction,” said Ha In-hwan of SK Securities.

“Under current circumstances, it is not likely that the US-North Korea summit by itself will act as an ascending momentum for the stocks related to inter-Korean economic cooperation.”

But the eased geopolitical tension may indirectly contribute to a bull market here, in case a peace treaty triggers a strong won and eventually encourage foreign purchases, the researcher noted.

While outlooks were somewhat optimistic regarding Tuesday’s summit, tension persisted on the upcoming Federal Open Market Committee and European Central Bank meetings slated for later this week.

The US Fed is largely anticipated to up its policy rate by 25 basis points to a range of 1.75-2 percent, further widening the gap with Seoul’s current rate of 1.5 percent. The European Bank is likely to discuss on Thursday its earlier-than-expected exit plan from its years of quantitative easing.

The tightening gestures from the US and Europe have been causing concerns of capital outflow from the relatively slow-paced South Korea, despite the recent peninsular peace momentum.

When the US key rate overtook that of South Korea in March, foreign investment plunged by $1.4 billion in April, though it soared in the following month in the wake of the successful April 27 inter-Korean summit.

“The recent rate hike in the US has created financial instability in emerging countries,” Bank of Korea Gov. Lee Ju-yeol warned in a BOK conference last week.

“Such drastic movement of capital and market volatility may take place at any time in the future as developed countries seek to normalize their monetary policies.”

By Bae Hyun-jung (tellme@heraldcorp.com)