It May Be Time for Investors to Worry About North Korea

Investors should start paying more attention to the risks coming from nuclear-armed North Korea, experts say.

 “Financial markets need to care” about the risks from nuclear-armed North Korea, Citigroup Inc. analysts including Asia Pacific chief economist Johanna Chua wrote in a 40-plus page report dated Wednesday. 

The long-present military provocation including nuclear-weapon tests, the unpredictability of the regime under Kim Jong-un and China stepping up pressure, could have a bigger impact on global economy than before.

“It is tough to price anything other than higher volatility in the short-term, but there are clear risks to supply chains and to global confidence, as well as implications for capital flows that could upset market equilibria,” the Citigroup analysts wrote.

The war rhetoric and the numerous episodes of tensions with North Korea over the years - including the sinking of a South Korean naval vessel and multiple nuclear tests - might have steeled investors’ nerves.

“Investors have become comfortable with the view that geopolitical tensions invariably blow over, that markets rally back, and the right trade is to buy the dip,” Goldman Sachs Group Inc. analysts wrote this week.

However, Goldman analysts including Charles Himmelberg “find it surprising” the Kospi Index of South Korean stocks and the won had advanced so much this year.

While equity and foreign-exchange derivatives signal somewhat more attention, there too the magnitude of concerns appears limited, they wrote.

Read more at Bloomberg