The Daily Update - Korea: Bombs Have Dropped But Prices Still Haven't

Safe haven assets rallied today after North Korea fired a missile 2,700km straight over Hokkaido, the Japanese northern main island. This is the first time they have successfully fired a missile over Japanese territory in almost 20 years. This defiant and provocative military demonstration was described as, ‘an egregious threat to the peace and stability of the Asia Pacific region’ by Shinzo Abe, the Japanese Prime Minister. Being a man of detail, Trump responded to the media questioning, ‘What are you going to do about North Korea?’ stating, ‘We’ll see. We’ll see.’ as he left to meet the thousands in the Houston area devastated by Hurricane Harvey. He has since further clarified the situation stating that ‘all options are on the table’.

South Korea has already reacted with a heavy bombing demonstration: dropping eight 2,000 pound bombs in the adjoining Gangwon province "to showcase a strong punishment capability against the North". The spokesperson for President Moon Jae-in also said that the drill was designed to show their capability to ‘destroy the enemy's leadership in cases of emergency’.

For something that was in the air for just a quarter of an hour, this missile has further stirred global tensions, startled markets, and all but dashed hopes that the sympathetic new South Korean President and son of a North Korean refugee Moon Jae-in could secure stronger diplomatic ties with the rogue state. From a net creditor perspective the industrious and prudent nation of South Korea has managed to become an advanced and productive economy without building up significant net foreign debts in the process. According to our Net Foreign Asset Model it is a 4 star nation with plenty of investment grade credits with strong fundamentals. Unfortunately in recent years almost all of these have traded expensively according to our Relative Value Model and, for now,  look even less attractive with the escalating geopolitical concerns.

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