North Korea – Investors may be under pricing risk

A Bloomberg article on market response to North Korea’s (DPRK) latest missile test, ‘Why Investors Are Unfazed by North Korea’s Missile Launch’, makes for interesting reading.

While the article explains that markets are focused more on improved economic news than geopolitics, it details the belief of many analysts that the test and the US response is a quantitative step, it was just another test.

However, I believe that there has been a qualitative change in the crisis – The series of upping the ante steps between the US and the DPRK has resulted in a new stage in the crisis over the last two weeks.

This is reflected in a Global Times editorial published today. The state owned newspaper rejects Trump’s demands for more sanctions:

Washington has placed China in a precarious situation by asking for more than what was originally expected by the UN Security Council regarding the previous round of North Korea sanctions. China has always carried out UN Security measures, however, it will refuse extra responsibilities stemming from both sides.

The editorial also tells the US that the crisis is a mess of the US’ own making and that, “US foreign policy on North Korea has been nothing but an abysmal failure“, and goes on to say:

Also, the US might want to take North Korea’s national security requests seriously from here on out.

The editorial also admonishes the DPRK:

It would be an error on the part of Pyongyang to view the recent missile launch as a tipping point for US military dominance. North Korea will never have the same muscle power as the US. Besides, the international community will never recognize North Korea as a nuclear force to be reckoned with.

There is an underlying logic compelling the US and the DPRK on their respective courses but the risks are heightened by an inexperienced US administration that has already made serious foreign policy errors.

If the article is correct that the markets have priced in the risks of the North Korea-US crisis on the basis that the launch was just another test, then they may well be under pricing….

 

Gary Hollands

 

Geopolitical analyst Tyga FX