1. Why investors are unfazed by North Korea’s missile launch

Why investors are unfazed by North Korea’s missile launch

North Korea launched an intercontinental ballistic missile near Japan, but investors and analysts were unfazed by the latest provocation.

By: | Updated: November 29, 2017 4:35 PM
North Korea announced on its state-run TV that it “successfully” fired a Hwasong-15 with improved technology that would put the entire US in range. (Image: Reuters)

North Korea launched an intercontinental ballistic missile near Japan, but investors and analysts were unfazed by the latest provocation. The benchmark Kospi index opened higher Wednesday, gradually climbing as much as 0.4 percent with financial shares and automakers spurring the advance, before the equity gauge ended the day little changed. The won rose 0.7 percent against the dollar to 1,076.90, while benchmark 10-year sovereign bond yield was steady at 2.488 percent. The ICBM test fits a pattern of investors brushing aside geopolitical tit-for-tat moves and instead focusing on a world that’s still awash with liquidity, where economies and earnings are powering on. The Bank of Korea will set policy on Thursday and release figures for gross domestic product on Friday.

North Korea announced on its state-run TV that it “successfully” fired a Hwasong-15 with improved technology that would put the entire U.S. in range. Japan said the missile flew for 53 minutes on a lofted trajectory and may have reached an altitude of more than 4,000 kilometers (2,500 miles) before landing in waters about 250 kilometers from its northwest coast. South Korean Finance Minister Kim Dong-yeon said after the launch that the government will closely monitor changes in the economy and take market-stabilizing steps if unusual movements are seen. Separately, Yonhap News reported that BOK Senior Deputy Governor Yoon Myun-shik also said the launch’s market impact will be limited.

Eastspring Investments

Paul Kim, chief investment officer in Seoul for equities

“Investors had already expected that North Korea would continue to test fire a missile. Also, some market participants have already sold off shares on the risk recently” “The important thing is the U.S. response, but U.S. equities didn’t seem to react to the launch and Washington didn’t respond to the issue much yet” “In the previous launch, the U.S. showed a strong response and that affected the U.S.-China relations. But this time, I don’t think the North Korean issues will affect the relations between U.S. and China because they recently had a summit between Xi Jinping and Trump, reaching a consensus on North Korean affairs” “I don’t expect any unexpected noise on the market”

Craigs Investment Partners

Mark Lister, head of private wealth research

“People have got somewhat conditioned to some of these tests that we’ve seen” “It’s good that no one is panicking and the world isn’t hanging off every development, but on the other hand maybe we’re all a little bit complacent” “The crux of it is that people ascribe a very low likelihood of it developing into something more sinister” “Markets are choosing to focus on the positives: that tax reform might be more likely, we’re still getting good corporate news, and all the economic data is ticking over pretty nicely”

IG Asia

Jingyi Pan, market strategist

“A look at haven assets such as gold finds that the moderate concern had likely already been priced in with earlier reports of the launch prep” “To the markets, this latest launch also marks little differences from previous ones landing in Japan’s vicinity despite the apparent progress in technology” “The market simply does not see any impact to react to”

Nomura Holdings Inc.

Vivek Rajpal, a rates strategist

“I believe markets are more responding to economic data than geopolitics for some time now” “Given that economic data is bullish, markets are more focused on it, not to forget that global central banks infusion of liquidity is suppressing the volatility”

Oanda Corp.

Stephen Innes, head of trading for Asia-Pacific

The KRW reaction is very telling as USDKRW NDF barely moved, he said in a note “Geopolitically risk desensitized investors view little chance of escalation and are using these opportunities to add risk” On the broader won rally, he says the move has more to do with Thursday’s BOK rate decision. “Traders will be on the edge of their seat awaiting the BOK rate hike and more specifically what tone the governor will take. There’s a high chance for dovish interest hike. Crunch time for Asia FX traders,” he wrote

Australia & New Zealand Banking Group Ltd.

Sanjay Mathur, chief economist

There are two reasons for this. First, the market has become “quite fatigued” on this front as we have had several similar incidence now. Most market participants now regard this as an ongoing threat but with a low probability of an actual confrontation materializing Secondly, the global recovery is weighing more positively

Dymon Asia Capital

Sian Goh, head of strategy and research

“The market is largely desensitize now to missile launches from North Korea. This is the 15th missile launch this year alone” “Markets are much more focused on the positive stories of reflation, stronger global growth, equity outperformance and U.S. tax reform at the moment” “However, we believe North Korea is determined to become a nuclear superpower and they will continue to test their missile capability” “There is a complacency in the market that the United States and its allies, South Korea and Japan, will not act for fear of the consequences. The risk of the U.S. potentially doing a surgical strike, for instance, is increasing”

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