Why markets should be worried about North Korea?

Danger is still looming large for global markets as North Korea tensions escalate.

north korea
North Korean leader Kim Jong Un inspects the intermediate-range ballistic missile Pukguksong-2's launch test with Ri Pyong Chol (R) in this undated photo released by North Korea's Korean Central News Agency. Reuters

Investors might have shown resilience in the face of North Korea tensions, but the danger is still looming large for global markets due to following reasons:

  • North Korea has fired 17 missiles during 11 tests since February, with the latest one that can carry a large and heavy nuclear warhead.
  • Less than six years into his reign, Kim Jong Un has tested more missiles than his father and grandfather combined. This implies a significant technological progress under the leadership of Kim Jong-Un.
  • While U.S. President Donald Trump has called on his foreign allies to take action against North Korea's missile threat, it is still not entirely clear what new steps could be taken.
chian us
U.S. President Donald Trump (L) holds a rally with supporters in Council Bluffs, Iowa and Chinese President Xi Jinping waits for leaders to arrive at a summit in Shanghai. REUTERS
  • According to reports, Chinese President Xi Jinping might put the onus back on the U.S. when it comes to dealing with North Korea. For Xi, bigger concerns are the prospects for military conflict on the Korean Peninsula or a chaotic collapse of the regime.
  • Any heightened military activity or a breakup of China-U.S. relation would impact commodity prices and hurt global risk assets at large.