Invest
What US-North Korean tensions mean for share markets
There are three potential ways the escalating pressure between North Korea and the United States could play out, and each one will affect share markets in different ways, according to an economist.
What US-North Korean tensions mean for share markets
There are three potential ways the escalating pressure between North Korea and the United States could play out, and each one will affect share markets in different ways, according to an economist.
The last week has seen the risk of conflict between the US and North Korea rise dramatically, with President Trump threatening the hermit nation with “fire and fury” should they continue to provoke and threaten the US.
North Korea subsequently responded with talk of attacking US soldiers based in Guam, which AMP Capital chief economist Shane Oliver notes has caused a reaction in global markets, with share markets taking a fall while bond and gold prices go up as investors seek less risky investments.
“This all reminds me of something out of James Bond — or rather Austin Powers — except that it’s serious and naturally has led to heightened fears of an imminent military conflict,” he said.
“How it unfolds from here is unclear but it does seem that the North Korean issue after years of escalation and de-escalation may come to a head soon.”
Mr Oliver suggested investors should consider three potential scenarios for how these tensions play out.
A diplomatic resolution
Much like the Cuban Missile Crisis in 1962, Mr Oliver said it’s likely the two nations will reach a diplomatic solution rather than engage one another in conflict.
Mr Oliver said the “sabre rattling” will likely continue, and even intensify, before this resolution is achieved, at which point share markets will likely see a 5 to 10 per cent correction before rebounding.
Brief and contained conflict
A military conflict without “a full-on ground war or regime change” is another possible outcome, Mr Oliver said, comparing this scenario to the 1991 and 2003 gulf wars — neither of which affected share markets greatly.
“In both gulf wars while share markets were adversely affected by nervousness ahead of the conflicts they started to rebound just before the actual conflicts began,” he explained.
Significant military engagement
The third possible outcome, and one which Mr Oliver predicts would be more likely than a brief and contained conflict, is a full-blown military offensive.
“A contained gulf war style military conflict is unlikely as North Korea would most likely launch missile attacks against South Korea (notably Seoul) and Japan causing significant loss of life,” he said.
Should the tensions between the US and North Korea give way to a significant conflict, share markets will likely see falls of 20 per cent or more “before it became clear that the US would prevail”, Mr Oliver explained.
Mr Oliver anticipates that of the three potential scenarios, a diplomatic solution is the most likely outcome.
“Given the huge risks in terms of the potential loss of life in South Korea and Japan as North Korea would initially respond to any attack on its soil, diplomacy remains the most likely path,” he said.
“In this context Trump’s threats along with the US’ show of force earlier this year in Syria and Afghanistan is designed to warn North Korea of the consequences for them of an attack on the US or its allies, not to indicate that an armed conflict is imminent.”
Until such a solution is reached, market volatility could increase as uncertainty continues to influence markets.
Shares
The surprising poster child for ESG investing
Investors looking to have the most impact on the world should not simply follow ESG values, but instead focus on companies that will be needed in a “post-carbon world”. ...Read more
Shares
5 tips to turn down the noise and stay focused as an investor
A surge in financial information, opinions and a natural inclination to focus on the negatives is leading to poorer short-term outcomes for investors, which is impacting long-term results, an economis...Read more
Shares
Why investors should expect modest returns this financial year
Regardless of the investment type, the highs of the 2020-21 financial year are unlikely to be replicated over the next 12 months, an industry expert has warned investors. ...Read more
Shares
Are ETFs and REITs a way for young Australians to build their stake in the property market?
Fractional property isn’t the only low-cost route into Australia’s property market jockeying for attention from younger investors. ...Read more
Shares
Is ESG investing a bubble or the future?
Investors are having a change of preference, with climate risk becoming more prevalent than ever. But is this driving the next investing fad or is it the way of the future? ...Read more
Shares
Study reveals why younger adults are likely to indulge in risky investment behaviour
The risky behaviour associated with ‘meme stocks’ should not surprise markets as younger adults continue to indulge in riskier investment behaviour. ...Read more
Shares
ETFs are more popular than ever
Exchange-traded funds are moving from novel to normal for Australian investors. ...Read more
Shares
AUSIEX: ESG stock trading quadrupled over lockdown
It may have started small, but the ESG trading movement is quickly gaining momentum among Australia’s investment community. ...Read more
Do lockdowns boost property prices? Are short-sellers levelling the playing field? Did you lodge your tax returns early?
Listen now
Will lockdowns halt the housing boom? Is the metaverse taking over? And the cons of lodging your tax returns early
Listen now
Are you being priced out of the market? Have you got the Tuesday blues? And are you ready for the upcoming super changes?
Listen now
Are property prices set to crash? Should you jump on board the fintok craze? And how to prepare for this tax time
Listen now
Shares
The surprising poster child for ESG investing
Investors looking to have the most impact on the world should not simply follow ESG values, but instead focus on companies that will be needed in a “post-carbon world”. ...Read more
Shares
5 tips to turn down the noise and stay focused as an investor
A surge in financial information, opinions and a natural inclination to focus on the negatives is leading to poorer short-term outcomes for investors, which is impacting long-term results, an economis...Read more
Shares
Why investors should expect modest returns this financial year
Regardless of the investment type, the highs of the 2020-21 financial year are unlikely to be replicated over the next 12 months, an industry expert has warned investors. ...Read more
Shares
Are ETFs and REITs a way for young Australians to build their stake in the property market?
Fractional property isn’t the only low-cost route into Australia’s property market jockeying for attention from younger investors. ...Read more
Shares
Is ESG investing a bubble or the future?
Investors are having a change of preference, with climate risk becoming more prevalent than ever. But is this driving the next investing fad or is it the way of the future? ...Read more
Shares
Study reveals why younger adults are likely to indulge in risky investment behaviour
The risky behaviour associated with ‘meme stocks’ should not surprise markets as younger adults continue to indulge in riskier investment behaviour. ...Read more
Shares
ETFs are more popular than ever
Exchange-traded funds are moving from novel to normal for Australian investors. ...Read more
Shares
AUSIEX: ESG stock trading quadrupled over lockdown
It may have started small, but the ESG trading movement is quickly gaining momentum among Australia’s investment community. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
