Strategist / Professor, Troika Advisory

Terence T. Lim, Ph.D.

Strategist / Professor

Troika Advisory

Thematic (Sector/Industry)

<p>The geopolitical risk revolving around North Korea seems now moving into the beginning of an endgame. Investors have been proved right by ignoring the scenarios of bad outcomes over the years. But the risk is quickly becoming something that will have a significant and long-lasting implication to the outlook of South Korean economy and capital markets. There are six possible outcomes ranging from a peaceful resolution to a full-blown military conflict, in our view. Assessing the probability of each outcome is a dynamic process as the situation is quickly evolving. This clearly increases uncertainty to the Korean equity markets which are already under pressure due to the Trump administration's protectionist trade policy and looming trade war. We are cautious about the near-term outlook of South Korean equities. Among the major stakeholders except South Korea, our analysis shows that Japan may suffer most from the negative fallout from the risk. </p>

The geopolitical risk revolving around North Korea seems now moving into the beginning of an endgame. Investors have been proved right by ignoring the scenarios of bad outcomes over the years. But the risk is quickly becoming something that will have a significant and long-lasting implication to the outlook of South Korean economy and capital markets. There are six possible outcomes ranging from a peaceful resolution to a full-blown military conflict, in our view. Assessing the probability of each outcome is a dynamic process as the situation is quickly evolving. This clearly increases uncertainty to the Korean equity markets which are already under pressure due to the Trump administration's protectionist trade policy and looming trade war. We are cautious about the near-term outlook of South Korean equities. Among the major stakeholders except South Korea, our analysis shows that Japan may suffer most from the negative fallout from the risk. 

North Korea Nuclear Tensions: Beginning of an Endgame - Scenario Analysis of Likely Outcomes