The US-North Korea conflict and a potential resolution
US’ President Donald Trump and North Korea’s Leader Kim Jong Un are preparing to meet for a historic summit in Singapore. We expect the two governments to continue negotiations, if not on June 12, 2018 at this summit in Singapore, then at some point in the near future. If the summit were to be called- off at the last minute, we would expect that to represent a delay, rather than a cancellation, and both sides to work towards a rescheduled date.
We expect the upcoming summit to be equally full of pomp and circumstances but light on immediate deliverables. Given the number of issues (nuclear programme, ballistic missile programme, economic sanctions, and others), the two leaders will likely attempt to lay the groundwork for a framework to address them.
We expect both parties to outline confidence-building measures for future talks, but stop short of any significant decisions. The market remains cautious on the potential outcome of the US-North Korea summit. The question that remains now is whether the market wish list could become fruitful.
Negotiators outline a multiyear process for a complete, verifiable, and irreversible dismantlement of the North Korean nuclear programme. This involves halting its testing of inter- continental and short-range ballistic missiles, which threaten the US, South Korea, and Japan, and laying out potential enforcement mechanisms.
However, we remain sceptical of certain issues on this outcome of this negotiation. Given that President Trump’s criticism that the JCPOA was not broad enough, there is a risk that he will demand a comprehensive deal with North Korea, encompassing its nuclear programme, inter- continental ballistic and shorter-range missiles, and extensive cyber attacks.
If the North balks at an expanded agreement with the US, the summit may lead to a new round of tension. While still at its early stages, there has already been talks about potential infrastructure opportunities across the two Koreas. South Korea has already laid out a bold vision, creating ‘economic belts’ to integrate the economies of the North and South, and strengthen links with China and Russia.
That said, such projects can proceed only if there is meaningful progress towards a denuclearisation agreement at the US-North Korea summit. The market will certainly be watching closely on the sidelines of this potential development and investors will be on their tenterhooks once again.