Investors are rightly concerned about the threats to global stability that North Korea poses. Andrew Kenningham, chief global economist at Capital Economics, poses these six questions, including one key investment conclusion. The following is an abridged version, though the quotes are direct:
1. Is this really anything new? Recent developments are not completely new ... What has changed is that the technology is more powerful."
2. Will the situation escalate? The risk of conflict, though (hopefully) still small, is clearly growing.
3. Will the West impose new sanctions against North Korea? The US is also likely to tighten its sanctions regime ... So far, though, these sanctions have not prevented Kim Jong Un from pursuing his nuclear program.
4. Will the U.S. put more pressure on China? Yes, but with little effect.
5. What would be the economic effects of a war? An armed conflict would, first and foremost, be a human tragedy, but it would also have huge economic consequences. The effect on South Korea itself could be devastating.
6. How will markets react? As long as outright war is avoided, global asset prices are likely to prove resilient. This has been the case during previous geopolitical events, such as the Cuban missile crisis, when war was narrowly avoided.