Back
About RSIS
Introduction
Building the Foundations
Welcome Message
Board of Governors
Staff Profiles
Executive Deputy Chairman’s Office
Dean’s Office
Management
Distinguished Fellows
Faculty and Research
Associate Research Fellows, Senior Analysts and Research Analysts
Visiting Fellows
Adjunct Fellows
Administrative Staff
Honours and Awards for RSIS Staff and Students
RSIS Endowment Fund
Endowed Professorships
Career Opportunities
Getting to RSIS
Research
Research Centres
Centre for Multilateralism Studies (CMS)
Centre for Non-Traditional Security Studies (NTS Centre)
Centre of Excellence for National Security (CENS)
Institute of Defence and Strategic Studies (IDSS)
International Centre for Political Violence and Terrorism Research (ICPVTR)
Research Programmes
National Security Studies Programme (NSSP)
Social Cohesion Research Programme (SCRP)
Studies in Inter-Religious Relations in Plural Societies (SRP) Programme
Other Research
Future Issues and Technology Cluster
Research@RSIS
Science and Technology Studies Programme (STSP) (2017-2020)
Graduate Education
Graduate Programmes Office
Exchange Partners and Programmes
How to Apply
Financial Assistance
Meet the Admissions Team: Information Sessions and other events
RSIS Alumni
Outreach
Global Networks
About Global Networks
RSIS Alumni
International Programmes
About International Programmes
Asia-Pacific Programme for Senior Military Officers (APPSMO)
Asia-Pacific Programme for Senior National Security Officers (APPSNO)
International Conference on Cohesive Societies (ICCS)
International Strategy Forum-Asia (ISF-Asia)
Executive Education
About Executive Education
SRP Executive Programme
Terrorism Analyst Training Course (TATC)
Public Education
About Public Education
Publications
RSIS Publications
Annual Reviews
Books
Bulletins and Newsletters
RSIS Commentary Series
Counter Terrorist Trends and Analyses
Commemorative / Event Reports
Future Issues
IDSS Papers
Interreligious Relations
Monographs
NTS Insight
Policy Reports
Working Papers
External Publications
Authored Books
Journal Articles
Edited Books
Chapters in Edited Books
Policy Reports
Working Papers
Op-Eds
Glossary of Abbreviations
Policy-relevant Articles Given RSIS Award
RSIS Publications for the Year
External Publications for the Year
Media
News Releases
Speeches
Video/Audio Channel
Events
Contact Us
S. Rajaratnam School of International Studies Think Tank and Graduate School Ponder The Improbable Since 1966
Nanyang Technological University Nanyang Technological University
  • About RSIS
      IntroductionBuilding the FoundationsWelcome MessageBoard of GovernorsHonours and Awards for RSIS Staff and StudentsRSIS Endowment FundEndowed ProfessorshipsCareer OpportunitiesGetting to RSIS
      Staff ProfilesExecutive Deputy Chairman’s OfficeDean’s OfficeManagementDistinguished FellowsFaculty and ResearchAssociate Research Fellows, Senior Analysts and Research AnalystsVisiting FellowsAdjunct FellowsAdministrative Staff
  • Research
      Research CentresCentre for Multilateralism Studies (CMS)Centre for Non-Traditional Security Studies (NTS Centre)Centre of Excellence for National Security (CENS)Institute of Defence and Strategic Studies (IDSS)International Centre for Political Violence and Terrorism Research (ICPVTR)
      Research ProgrammesNational Security Studies Programme (NSSP)Social Cohesion Research Programme (SCRP)Studies in Inter-Religious Relations in Plural Societies (SRP) Programme
      Other ResearchFuture Issues and Technology ClusterResearch@RSISScience and Technology Studies Programme (STSP) (2017-2020)
  • Graduate Education
      Graduate Programmes OfficeExchange Partners and ProgrammesHow to ApplyFinancial AssistanceMeet the Admissions Team: Information Sessions and other eventsRSIS Alumni
  • Outreach
      Global NetworksAbout Global NetworksRSIS Alumni
      International ProgrammesAbout International ProgrammesAsia-Pacific Programme for Senior Military Officers (APPSMO)Asia-Pacific Programme for Senior National Security Officers (APPSNO)International Conference on Cohesive Societies (ICCS)International Strategy Forum-Asia (ISF-Asia)
      Executive EducationAbout Executive EducationSRP Executive ProgrammeTerrorism Analyst Training Course (TATC)
      Public EducationAbout Public Education
  • Publications
      RSIS PublicationsAnnual ReviewsBooksBulletins and NewslettersRSIS Commentary SeriesCounter Terrorist Trends and AnalysesCommemorative / Event ReportsFuture IssuesIDSS PapersInterreligious RelationsMonographsNTS InsightPolicy ReportsWorking Papers
      External PublicationsAuthored BooksJournal ArticlesEdited BooksChapters in Edited BooksPolicy ReportsWorking PapersOp-Eds
      Glossary of AbbreviationsPolicy-relevant Articles Given RSIS AwardRSIS Publications for the YearExternal Publications for the Year
  • Media
      News ReleasesSpeechesVideo/Audio Channel
  • Events
  • Contact Us
    • Connect with Us

      rsis.ntu
      rsis_ntu
      rsisntu
      rsisvideocast
      school/rsis-ntu
      rsis.sg
      rsissg
      RSIS
      RSS
      Subscribe to RSIS Publications
      Subscribe to RSIS Events

      Getting to RSIS

      Nanyang Technological University
      Block S4, Level B3,
      50 Nanyang Avenue,
      Singapore 639798

      Click here for direction to RSIS
Connect
Search
  • RSIS
  • Publication
  • RSIS Publications
  • CO17205 | North Korea Threat and Asian Markets: A Paradox?
  • Annual Reviews
  • Books
  • Bulletins and Newsletters
  • RSIS Commentary Series
  • Counter Terrorist Trends and Analyses
  • Commemorative / Event Reports
  • Future Issues
  • IDSS Papers
  • Interreligious Relations
  • Monographs
  • NTS Insight
  • Policy Reports
  • Working Papers

CO17205 | North Korea Threat and Asian Markets: A Paradox?
Mikio Kumada, Michael Raska

01 November 2017

download pdf

Synopsis

How are East Asian stock exchanges reacting to North Korea’s sabre rattling? For the region’s markets, the following equation seems to apply: the more North Korea conducts nuclear and missile tests, the better.

Commentary

NORTH KOREA has significantly increased the number of missile tests this year, while rejecting the latest round of UN Security Council sanctions as well as the “military option” warnings from Washington. In September 2017, Pyongyang escalated tensions to a new level by firing two long-range missiles that flew over Japan, conducting a hydrogen bomb test, and then boasting about “sinking” the Japanese archipelago into the Pacific a wave of nuclear attacks.

As tensions on the Korean Peninsula reached their peak in October, the stock market indices in the Far East climbed to new record highs. Technically, the market exhibits a remarkably strong positive momentum, which suggests that longer-term bull market phase has begun. Furthermore, Asia’s markets are not simply following the global economic upswing, but outperforming.

South Korean and Far East Equities

The strength of East Asia’s equity markets this year becomes particularly evident when compared to those of North America, Western Europe and Japan. Since the beginning of this year, the MSCI Korea Index in US dollars has surged close to 40 percent, while the MSCI Far East Index in US dollars has increased about 33 percent. That compares to about 20 percent, 14 percent, and 13 percent for the equivalent stock market indices of Europe, Japan, and United States, respectively (all translated in US dollars for comparative purposes).

From a macroeconomic point of view, Asia is booming. Even the mature economy of Japan is performing very well – in the second quarter of the year, Japan’s gross domestic product rose at annualised rate of 2.5%, exceeding its own potential growth rate more than three times. The earnings growth of its stock market-listed companies is more than twice the global average, while exports have been recording double-digit gains, with shipments to Asia increasing most sharply. In economic terms, Japan’s is certainly nowhere near “sinking” into the Pacific, figuratively speaking.

Similarly, stronger domestic growth and rising stock markets are evident across the Far East and the world. In fact, the second quarter of 2017 marked the first in which all top ten economies reported positive growth rates for the first time since 2013.


Source: Bloomberg; LGT Capital Partners

Market Expectations – A Negotiated Settlement?

On the one hand, the positive economic and market trends may provide an important argument as to why hardly anyone in the business world takes North Korea’s sabre rattling seriously. In this view, East Asia’s stock markets, which had been generally lagging the West and Japan over most of the past five years, are now simply catching up. However, the pronounced strength of the Far Eastern indices may imply that a benign geopolitical outcome on the Korean Peninsula is in the making.

As a crowd, investors seem to have a clear vision: the current security developments on the Korean Peninsula are not leading toward a destructive war, but a pragmatic recognition of North Korea’s nuclear status. In this viewpoint, North Korea’s current crisis escalation may paradoxically signal a willingness to engage in a process that points toward some form of a negotiated settlement, enabling a breakout from the current geopolitical deadlock.

Restarting talks with North Korea amid conditions of strategic distrust and varying geostrategic interests would of course not be a straightforward deal. However, potential realistic goalposts for restarting talks would include establishing crisis prevention mechanisms and communication links with Pyongyang to mitigate any potential escalation pressures or miscalculations.

Subsequently, realistic benchmarks for reaching an agreement with Pyongyang would entail arms limitations, rather than complete and irreversible denuclearisation. In this context, North Korea would agree to halt and scale down its nuclear and missile programme, in exchange for easing of sanctions, de facto regime recognition, and security guarantees by the US and South Korea. In the long-term, a negotiated settlement would envision ways to increase economic integration and investment in North Korea with a potential for a peace treaty.

De-isolating North Korea

It is perhaps worth remembering that when the People’s Republic of China took its first steps toward opening-up its economy in the 1970s, in many respects it appeared no less radical and isolated than North Korea is today. Engaging it through varying economic incentives, rather than only through diplomatic and military strangulation, may offer political outcomes that would de-isolate Pyongyang.

If Washington, Pyongyang and the other stakeholders can align their strategic choices to successfully overcome more than 60 years of Cold War confrontation, the current wave of nuclear tensions will be largely forgotten a decade from today. Instead, in the not too distant future, American tourists may be booking their next vacation to visit the legendary Mt. Paektu, possibly using an app on a brand-name smartphone manufactured in a North Korean special economic zone.

About the Authors

Mikio Kumada is Executive Director, Global Strategist at LGT Capital Partners in Hong Kong. Michael Raska is Assistant Professor at the Institute of Defence and Strategic Studies, a constituent unit of the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University, Singapore.

Categories: RSIS Commentary Series / Country and Region Studies / International Politics and Security / Non-Traditional Security / Americas / East Asia and Asia Pacific / Southeast Asia and ASEAN
comments powered by Disqus

Synopsis

How are East Asian stock exchanges reacting to North Korea’s sabre rattling? For the region’s markets, the following equation seems to apply: the more North Korea conducts nuclear and missile tests, the better.

Commentary

NORTH KOREA has significantly increased the number of missile tests this year, while rejecting the latest round of UN Security Council sanctions as well as the “military option” warnings from Washington. In September 2017, Pyongyang escalated tensions to a new level by firing two long-range missiles that flew over Japan, conducting a hydrogen bomb test, and then boasting about “sinking” the Japanese archipelago into the Pacific a wave of nuclear attacks.

As tensions on the Korean Peninsula reached their peak in October, the stock market indices in the Far East climbed to new record highs. Technically, the market exhibits a remarkably strong positive momentum, which suggests that longer-term bull market phase has begun. Furthermore, Asia’s markets are not simply following the global economic upswing, but outperforming.

South Korean and Far East Equities

The strength of East Asia’s equity markets this year becomes particularly evident when compared to those of North America, Western Europe and Japan. Since the beginning of this year, the MSCI Korea Index in US dollars has surged close to 40 percent, while the MSCI Far East Index in US dollars has increased about 33 percent. That compares to about 20 percent, 14 percent, and 13 percent for the equivalent stock market indices of Europe, Japan, and United States, respectively (all translated in US dollars for comparative purposes).

From a macroeconomic point of view, Asia is booming. Even the mature economy of Japan is performing very well – in the second quarter of the year, Japan’s gross domestic product rose at annualised rate of 2.5%, exceeding its own potential growth rate more than three times. The earnings growth of its stock market-listed companies is more than twice the global average, while exports have been recording double-digit gains, with shipments to Asia increasing most sharply. In economic terms, Japan’s is certainly nowhere near “sinking” into the Pacific, figuratively speaking.

Similarly, stronger domestic growth and rising stock markets are evident across the Far East and the world. In fact, the second quarter of 2017 marked the first in which all top ten economies reported positive growth rates for the first time since 2013.


Source: Bloomberg; LGT Capital Partners

Market Expectations – A Negotiated Settlement?

On the one hand, the positive economic and market trends may provide an important argument as to why hardly anyone in the business world takes North Korea’s sabre rattling seriously. In this view, East Asia’s stock markets, which had been generally lagging the West and Japan over most of the past five years, are now simply catching up. However, the pronounced strength of the Far Eastern indices may imply that a benign geopolitical outcome on the Korean Peninsula is in the making.

As a crowd, investors seem to have a clear vision: the current security developments on the Korean Peninsula are not leading toward a destructive war, but a pragmatic recognition of North Korea’s nuclear status. In this viewpoint, North Korea’s current crisis escalation may paradoxically signal a willingness to engage in a process that points toward some form of a negotiated settlement, enabling a breakout from the current geopolitical deadlock.

Restarting talks with North Korea amid conditions of strategic distrust and varying geostrategic interests would of course not be a straightforward deal. However, potential realistic goalposts for restarting talks would include establishing crisis prevention mechanisms and communication links with Pyongyang to mitigate any potential escalation pressures or miscalculations.

Subsequently, realistic benchmarks for reaching an agreement with Pyongyang would entail arms limitations, rather than complete and irreversible denuclearisation. In this context, North Korea would agree to halt and scale down its nuclear and missile programme, in exchange for easing of sanctions, de facto regime recognition, and security guarantees by the US and South Korea. In the long-term, a negotiated settlement would envision ways to increase economic integration and investment in North Korea with a potential for a peace treaty.

De-isolating North Korea

It is perhaps worth remembering that when the People’s Republic of China took its first steps toward opening-up its economy in the 1970s, in many respects it appeared no less radical and isolated than North Korea is today. Engaging it through varying economic incentives, rather than only through diplomatic and military strangulation, may offer political outcomes that would de-isolate Pyongyang.

If Washington, Pyongyang and the other stakeholders can align their strategic choices to successfully overcome more than 60 years of Cold War confrontation, the current wave of nuclear tensions will be largely forgotten a decade from today. Instead, in the not too distant future, American tourists may be booking their next vacation to visit the legendary Mt. Paektu, possibly using an app on a brand-name smartphone manufactured in a North Korean special economic zone.

About the Authors

Mikio Kumada is Executive Director, Global Strategist at LGT Capital Partners in Hong Kong. Michael Raska is Assistant Professor at the Institute of Defence and Strategic Studies, a constituent unit of the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University, Singapore.

Categories: RSIS Commentary Series / Country and Region Studies / International Politics and Security / Non-Traditional Security

Popular Links

About RSISResearch ProgrammesGraduate EducationPublicationsEventsAdmissionsCareersVideo/Audio ChannelRSIS Intranet

Connect with Us

rsis.ntu
rsis_ntu
rsisntu
rsisvideocast
school/rsis-ntu
rsis.sg
rsissg
RSIS
RSS
Subscribe to RSIS Publications
Subscribe to RSIS Events

Getting to RSIS

Nanyang Technological University
Block S4, Level B3,
50 Nanyang Avenue,
Singapore 639798

Click here for direction to RSIS

Get in Touch

    Copyright © S. Rajaratnam School of International Studies. All rights reserved.
    Privacy Statement / Terms of Use
    Help us improve

      Rate your experience with this website
      123456
      Not satisfiedVery satisfied
      What did you like?
      0/255 characters
      What can be improved?
      0/255 characters
      Your email
      Please enter a valid email.
      Thank you for your feedback.
      This site uses cookies to offer you a better browsing experience. By continuing, you are agreeing to the use of cookies on your device as described in our privacy policy. Learn more
      OK
      Latest Book
      more info