Singapore shares were down at midday on Monday mainly due to concerns about Seoul’s new capital controls and tension on the Korean peninsula, but Singapore Airlines (SIAL.SI) may be in focus after announcing a $65 million stake buy in China Cargo Airlines.   

By the midday break, the Straits Times Index (STI) <.FTSTI> lost 24.86 points at 3,128.15. Total value of shares traded in the morning session was $800.8 million, up from $774.9 million on Friday.

Singapore Airlines said after the midday close that it will take a 16% stake in Shanghai-based China Cargo Airlines, which is currently 70% owned by China Eastern Airlines and 30 percent by Cosco.

“The STI is down, in line with the regional markets. South Korea is proposing capital controls and there are threats of war again, so these are the two key points,” said Gabriel Gan, senior vice president for equity sales at AmFraser Securities.

South Korea will go ahead with live firing drills from a disputed island on Monday, the country’s media said, despite threats of attack by Pyongyang and pressure from Russia and China to cancel the exercise.

Sunday’s announcement that Seoul would impose a levy on the foreign debt of banks from late 2011, in a move to discourage too much speculative hot money from flowing into South Korean assets, also weighed on markets.