11Sep

U.S./NORTH KOREA TENSIONS AND THE IMPACT ON STOCK MARKETS

There are several countries in the world that have a nuclear capability, but there is only one where the person at the top seems unhinged by many professional observers. That presents a problem for the U.S., Japan and South Korea in particular. North Korea’s leader, Kim Jong-un, who is referred to as the “Marshall” or the supreme leader, by North Koreans, is the son of the country’s former leader, Kim Jong-il.

By the age of two, most North Korean children have already remembered the words to songs that glorify Kim and his father and grandfather as if they are deity.

The problem this presents to the U.S. is that there is a much smaller chance that there could ever be an internal resistance movement in North Korea; a fact that removes one solution from the table. Most of North Koreas supplies come by way of their larger neighbor China. China sees North Korea as a convenient buffer between it and South Korea and Japan, so the motivation to stop exports to the country are suppressed.

On August 5, the United Nations Security Council adopted a resolution imposing new sanctions against North Korea in response to its escalating threats and missile launches.

Although the North Korean leader had been warned about the increased tensions that his missile launches have created in the West, and the potential response that North Korea faces, the country fired off three more short-range missiles on August 24.

The death of American college student Otto Warmbier has been seen as a tipping point in relations, but also facilitated some back-channel communications between the Trump administration and the rogue nation. This, according to sources at the Associated Press.

Response of the Markets

Investors feel more confident to invest in the stock market when they feel bolstered and the world seems stable, free of major disruptions. But, geopolitical events like North Korea’s posturing create uncertainty, instability and downright fear in investors. In the immediate aftermath, of the tension created by Kim’s pronouncements of firing missiles at Gaum, and the president’s response, the climate of stability had entered an unnerving phase that impacted the markets immediately.

Through August 25, investors had withdrawn $30 billion from U.S. stock funds, over the preceding 10 weeks. Much of that money was redirected at emerging markets and foreign stocks. Despite this fact, U.S. stock exchange-traded funds (ETF’s) have had net gains since the end of June.

Also, many market indicators are still bullish and many of the tensions, leading up to Kim’s threat against Guam, did not stop the markets from rising. During the current quarter, the S & P has been up nearly 1 percent through August 25 and saw a record high on August 8.

Many regional conflicts in the past have been weathered by the markets. South Korean stocks are up 30 percent this year and the market bounced up 9.1 percent after Soviet Ships headed back to their ports during the Cuban Missile Crisis in 1962. It may take more than a mad man to really ruffle Wall Street’s feathers.


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