The Seoul government on Saturday said the impact from the credit downgrade of European countries will likely be limited, saying the country and its markets have long prepared for the worst.

"The credit downgrades have long been anticipated, and both the markets and the government have been preparing for the possibility," an official from the Ministry of Strategy and Finance said.

Global credit ratings agency Standard & Poor's downgraded the credit ratings of nine European countries, including France, whose credit rating was knocked down by one notch from AAA to AA+.

Many analysts here warned of an exodus of European funds.

"This significantly raises the possibility of a foreign investment exodus, which led the recent growth in the stock market.

A shock in the market will be inevitable, especially if European funds begin to leave the market," said Hong Soon-pyo, an analyst from Daishin Securities Co.

Others, however, said the amount of outflow of European investment will be limited, as the investors have already withdrawn necessary funds to prepare for such a credit downgrade.

In 2011, total of 6.29 trillion won (US$5.47 billion) in British funds left the South Korean stock market with the total amount of European funds departing the local market amounting to some 9.57 trillion won, they said.

"A temporary shock will be inevitable following an outflow of additional European funds, but the size of withdrawal of funds by European investors will likely be limited," said Oh Seong-jin, head of a market research team at Hyundai Securities Co.

(Yonhap News)