The View | In spite of appearances, markets don’t really care about the Korean peninsula
‘Markets are much more sensitive to financial and economic policy-related risks – the pace of monetary tightening in the US and the threat of severe tensions in the euro zone’
Following several months of remarkable calm, fear is creeping back into global financial markets.
While there is no sense of panic, a confluence of factors has conspired to unsettle international investors.
The most conspicuous one is the renewed escalation in geopolitical risk, centred around the Korean peninsula but by no means confined to the tense standoff between Washington and Pyongyang. Other flashpoints include the deepening crisis in the Syrian civil war, which prompted US military strikes against the Russia-backed regime of President Bashar al-Assad, and an intensification of the US government’s fight against the terrorist group Islamic State.
The mounting tensions on the Korean peninsula – a show of force by Pyongyang over the weekend began with the showcasing of what appeared to be new intercontinental ballistic missiles and was quickly followed by the firing of a missile which exploded almost immediately after launch – pose the biggest threat to investor sentiment, given the erratic and unpredictable behaviour of North Korea’s young leader Kim Jong-un. The stakes, moreover, are huge, not just for Asia-Pacific but, more importantly, for the pivotal relationship between the US and China.
What is clear is that the deterioration in market conditions precedes the escalation in tensions over Syria and North Korea
By the end of last week, geopolitical turmoil was beginning to take its toll on markets.