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
3 themes Aussie investors are chasing in 2021
Australian retail investors believe electric vehicles, the sharing economy and large pharmaceutical companies to be the major winners in 2021, their trade active has revealed. ...Read more

Shares
Could healthcare stocks continue to rally in 2021?
Despite being one of the big winners during the COVID-19 pandemic, global healthcare is predicted to continue to perform strongly over the longer term, an industry expert has said. ...Read more

Shares
Why you should give the gift of investing this Christmas
Investors are being urged to think long-term before deciding on a Christmas gift, with experts pointing to more impactful gifting ideas. ...Read more

Shares
Crown faces share buybacks over alleged money laundering
Crown Resorts might be forced to buy back shares from investors after a class action against the casino’s governance and risk management failings caused a massive share price plunge in October. ...Read more

Shares
Airbnb skyrockets to nearly US$100bn public market debut
Airbnb has more than doubled its share price in its first day of trading as the company recorded one of the largest first day rallies in history. ...Read more

Shares
How investors can beat the market through ETFs
Despite being known to track an index, investors are being advised that exchange-traded funds have evolved and can now beat the very markets they were initially created to track. ...Read more

Shares
How first-time investors can plan their portfolios into 2021
It is more important than ever for first-time investors to have a clear strategy for managing their portfolios as we enter 2021. ...Read more

Shares
Back in the black: Qantas predicts breaking even in 2021
The national airline expects to break even in 2021, minus the costs of redundancy payments, according to an official statement. ...Read more

Shares
3 themes Aussie investors are chasing in 2021
Australian retail investors believe electric vehicles, the sharing economy and large pharmaceutical companies to be the major winners in 2021, their trade active has revealed. ...Read more

Shares
Could healthcare stocks continue to rally in 2021?
Despite being one of the big winners during the COVID-19 pandemic, global healthcare is predicted to continue to perform strongly over the longer term, an industry expert has said. ...Read more

Shares
Why you should give the gift of investing this Christmas
Investors are being urged to think long-term before deciding on a Christmas gift, with experts pointing to more impactful gifting ideas. ...Read more

Shares
Crown faces share buybacks over alleged money laundering
Crown Resorts might be forced to buy back shares from investors after a class action against the casino’s governance and risk management failings caused a massive share price plunge in October. ...Read more

Shares
Airbnb skyrockets to nearly US$100bn public market debut
Airbnb has more than doubled its share price in its first day of trading as the company recorded one of the largest first day rallies in history. ...Read more

Shares
How investors can beat the market through ETFs
Despite being known to track an index, investors are being advised that exchange-traded funds have evolved and can now beat the very markets they were initially created to track. ...Read more

Shares
How first-time investors can plan their portfolios into 2021
It is more important than ever for first-time investors to have a clear strategy for managing their portfolios as we enter 2021. ...Read more

Shares
Back in the black: Qantas predicts breaking even in 2021
The national airline expects to break even in 2021, minus the costs of redundancy payments, according to an official statement. ...Read more