Asian markets retreat
Cautious investors sell amid rising geopolitical tensions
PETALING JAYA: Nervy investors have plenty of incentives to stay on the sidelines this week amid rising geopolitical uncertainties, although analysts see no reason to panic over North Korea’s latest provocation.
A top oficial in South Korea yesterday warned that North Korea was preparing for a intercontinental ballistic missile launch soon, a day after the isolated regime detonated its sixth and most powerful nuclear bomb to date.
Stock markets in Asia retreated yesterday, with South Korea’s main Kospi index going down 1.2% at 2,329 points.
The Nikkei 225 index in Japan fell 0.9% to 19,508 points, while Hong Kong’s Hang Seng Index declined 0.7% to 27,740 points.
Bursa Malaysia was closed yesterday for an extended weekend and will resume trade today, while financial markets in the US are also shut for the annual Labour Day holiday.
Gold, meanwhile, rose to its highest price in almost a year, topping US$1,335 in late Asian trading hours.
“The market’s reaction seems similar to past missile launches, investors sell stocks, rush to havens, assess the situation, and then buy the dips as tension eases,” FXTM chief market strategist Hussain Sayed said.
He added that the market has yet to price in any possibility of a war erupting soon, but said that “caution should remain warranted at this stage.”
The test on Sunday has prompted United Nation’s Security Council to scheduled an emergency meeting overnight to discuss possible new sanctions against North Korea.
Meanwhile, US President Donald Trump was reported to be considering his military options.
The economists at Citigroup Inc, according to a Bloomberg report, also see short-term risk-aversion trades arising from the latest development.
“But such market moves tend to be shortlived, as typically tensions defuse quickly.
“So unless the global response to this test raises the probability of a military strike or North Korean regime collapse (both unlikely), this time may play out similarly,” it said.
Meanwhile, investors will be keeping a close watch on the European Central Bank (ECB) policy decision this week.
This, according to Hussain Sayed, will be “the biggest risk event for the week.”
The decision to taper asset purchases was widely expected to occur this week, but given the strength of the Euro and implications on the inflation target, the ECB might push the decision until October.
ECB’s president Mario Draghi has refrained from weakening the euro through verbal intervention, although the minutes from July meeting showed concerns over the single currency’s strength.
Any verbal intervention will likely lead to a further drop in the euro from its highest levels in more than two years.
However, if economic data continues to surprise on the upside, the central bank will find it difficult to control the bulls from buying the currency.