U.S.-North Korea Tensions May Not Impact Markets Too Much, Say Analysts
Markets can see through the tensions between U.S. and North Korea, says Hans Goetti.
The tensions between North Korea and the U.S. may have flared up once again after the regime under dictator Kim Jong Un said it successfully tested a hydrogen bomb with ‘unprecedented power’, but the aftershocks of the nuclear exercise is unlikely to affect equity markets in a big way, according to analysts.
“Equity investors react in a very moderate way. It's typically just one day rather than three or four days and there would be sensitivity to the U.S. reaction as well,” said Adrian Mowat of JP Morgan, in a telephone interview with BloombergQuint.
Except Tokyo and Seoul that saw the biggest declines, the market reaction was moderate elsewhere in the region.
“My colleagues in Seoul seem quite sanguine about the situation.”
Hans Goetti, an independent research consultant, agreed with Mowat. “These political events, until they go completely out of control, will have a relatively short-term impact,” he told BloombergQuint over the phone from Singapore. Until the situation worsens drastically or reaches a war-like confrontation, equity markets will only show a muted and brief reaction to the current geopolitical tensions, he said.
The only thing that North Korea wants is essentially the survival of the regime and getting something out of it. I don’t think anyone is interested in a nuclear war. Although things can happen by accident, I think markets see through that.Hans Goetti, Independent Research Consultant
More sanctions by the U.S., Japan and China may not lead to a drastic escalation since the previous sanctions have not worked either, Goetti said. “The truth is that these sanctions do not work the way they are intended to work and the markets see through that.”
However, safe havens like gold, U.S. treasuries and currencies have seen a fair amount of movement since Sunday’s bomb testing by Pyongyang. “This movement too is supported and driven by good fundamentals, said Goetti.
On the Indian market, Goetti said that emerging markets have been benefiting from a weaker dollar and strong growth. While the Indian market may slightly be running ahead of itself, the outlook remains bullish in the long term. Emerging markets overall are expected to outperform the U.S. for “several quarters if not several years”, Goetti said.
