North Korea tensions ‘remain contained,’ say Nomura analysts

Tokyo-based Nomura said it expects the North Korea tensions to stay controlled, even after the rogue state on Tuesday fired a missile over Japan, according to a CNBC report.

“We see today’s provocation as in line with our base case for the [Korean] peninsula — that tension will remain elevated for some time, but also remain contained,” a team of Nomura research analysts said in a Tuesday note led by Hong Kong-based economist Minoru Nogimori.

The analysts cited a Friday report from Alastair Newton, co-founder and director of Nomura geopolitical consultant Alavan Business Advisory, that lowered the probability of war breaking out on the Korean peninsula to about 35% from nearly 50%.

Although Newton said the probability will “almost certainly” fluctuate, none of Nomura’s three early warning signals of potential U.S. military action have yet appeared this year.

The signals are: a U.S. government evacuation order to U.S. citizens in South Korea, a large scale U.S. military build-up near the Korean peninsula resembling 1994, and a ramp-up of the U.S. defense readiness condition to level three from level four, the Nomura report said.

Hua Chunying, spokeswoman for China’s Ministry of Foreign Affairs, questioned in a briefing the effectiveness of the exercises and called for “restraint” and dialogue.

News of the missile firing sent global stocks mostly lower and gold higher as investors sold risky assets and turned to safe-haven trades.

The South Korean won fell nearly 0.9% against the U.S. dollar, to 1,128 won overnight and was last trading near 1,124 won, according to FactSet.

The iShares MSCI South Korea Capped ETF (EWY), which counts Samsung Electronics and Hyundai Motor among its largest holdings, traded more than 1% lower Tuesday morning. EWY is up 28% so far this year.

“Tensions between North Korea and the US have, in our view, reached levels unseen since 1994, when the Clinton administration considered air strikes on North Korea’s main nuclear facility at Yongbyon,” the Nomura analysts said.