North Korea's bellicose rhetoric has highlighted geopolitical risks but stopped short of undermining South Korea's credit fundamentals, Moody's Investors Service said Wednesday.

It cited defense commitments by the U.S. and optimism over South Korea's new government in terms of economic policy.

"North Korea's rhetoric highlights long-standing geopolitical event risk which, however, has not had material, adverse affects on market sentiment in Seoul or on South Korea’s economic fundamentals -- this is a credit strength for South Korea," Moody's said in a report.

South Korea’s stability has been ensured by the deterrence provided by its robust alliance with the United States, it added.

The credit rating agency also noted investors' expectations over the economic policy direction of the conservative Park Geun-hye government. 

"During this ongoing episode of heightened tensions, optimism over the new Park Geun-Hye administration’s economic policies evidently surpasses fears over Pyongyang’s saber rattling," it said.

Moody's pointed out previous provocations by North Korea have had an "ephemeral or indeterminate effect" on South Korea's equity and foreign exchange markets.

The largest downward move in the foreign exchange market since the 2006 ballistic missile launch occurred in 2010 when South Korea's won fell more than 7 percent against the U.S. dollar immediately following the sinking of the South’s warship, the Cheonan, by a North Korean torpedo, it said.

South Korea is rated Aa3, stable, while North Korea is unrated, according to Moody's. (Yonhap News)