The best barometer to judge the situation in North Korea is the South Korean equity market and the Korean won, and they have been “quite sanguine,” Mark Matthews, head of Asia research for Bank Julius Baer told BloombergQuint.
“If anyone knows the true danger of North Korea, it's the South Koreans,” he said.
Tensions between the U.S. and North Korea escalated even further after South Korea's defence ministry reported the possibility of Kim Jong Un preparing for a intercontinental ballistic missile launch later in the week.
Soon after, U.S. Ambassador to the United Nations Nikki Haley said that North Korea was “begging for war”. President Donald Trump is now weighing in the option of further trade sanctions with an indirect impact on China -- North Korea's biggest trade partner.
Also Read: China's Oil Lifeline to North Korea Becomes Sanctions Target
While all of this took place within a day's time, the South Korean Kospi remained little changed on Tuesday morning. The won has weakened a little over a percent against the U.S. dollar over the last two days.
Equity markets will remain little affected by these geopolitical tensions said market experts Adrian Mowat and Hans Goetti on Monday morning, unless the situation escalates to a war-like situation. Matthews agreed.
Also Read: Gold Extends Rally to 11-Month High After North Korea Nuke Test
However, he also clarified that North Korea, “having come so far”, would not be quick to back down, and it would be fair to expect further escalation. Another variable that has changed is the people influencing Trump, he said, speaking about former foreign policy adviser Steve Bannon.
One of the last things Bannon said was, ‘until somebody solves the part of the equation where 10 million people in Seoul don't die in the first 30 minutes from conventional weapons, there is no military solution here. They got us.' That's a direct quote from him. But he's gone and now the generals are in charge.Mark Matthews, Head Of Asia Equity And Research, Bank Julius Baer
Also Read: Trump and Moon Agree to Show Muscle After North Korea Nuke
Why Are The Markets So Calm?
Global markets have taken in their stride a number of serious events -- tensions U.S. and China, announcement of the unwinding of the American central bank's $4 trillion balance sheet or now the possibility of an armed conflict.
Responding to a question on whether this was due to a numbness developed from years of liquidity, Matthews said that the reason was a strong equity cycle in the world's five major regions.
This is the first year since 2010 that all five major regions of the world - U.S., China, Europe, Japan and emerging markets - have had positive earnings growth. This is something that happens very, very rarely.Mark Matthews, Head Of Asia Equity And Research, Bank Julius Baer
Positive earnings growth coupled with unchanged labour costs are giving the companies a high margin which drives earnings and consequently the stock market, he said.
Also Read: The Real Danger Is Around U.S.-China Relations, Not North Korea: Ian Bremmer
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