North Korea situation grows Shakespearean – Much ado about nothing

2017/8/11 12:55:18

“The market is clearly saying it thinks that the statements from Trump and the North Koreans are just rhetoric, and that there are no realistic military options/outcomes. So traders are clearly sleeping peacefully in their beds even if the residents of Seoul or Guam may not be so comfortable,” says Tim Ash of Bluebay Asset Management.

 


LONDON, Aug 11, 2017 – The media worldwide is expending huge amounts of time, effort and money on covering the high profile shouting match between President Donald Trump and North Korean leader Kim Jong Un that has become shriller on a daily basis. However, Bluebay Asset Management’s top analyst Timothy Ash points out in commentary as of 08:34 today that markets all over the world are viewing this as little more than overblown rhetoric:

 

Remarkably sanguine market reaction to the risks building in Korea. Imagine, stocks only down 3% on the weak in South Korea, won down less than 2%. Pretty remarkable, perhaps even extraordinary, considering.

 

https://www.ft.com/content/7210f7e2-7e36-11e7-9108-edda0bcbc928Sent 

 

The market is clearly saying it thinks that the statements from Trump and the North Koreans are just rhetoric, and that there are no realistic military options/outcomes. So traders are clearly sleeping peacefully in their beds even if the residents of Seoul or Guam may not be so comfortable.

 

Let's hope that markets are better at pricing risks here than with Brexit, Trump's election, etc.

 

VIX has gone from 10 last week to 16, but that is still lower than during the taper tantrum when it went to 40, and the 10Y average of 20. I guess what we have seen is still a combination of broader clement global market conditions (solid/improving growth and low inflation), flush global liquidity, plus memory that past efforts to buy volatility have not really paid, and as each global risk event has built there has successively been less willingness to hedge, rather risk events have been seen, with hindsight, as opportunities to buy more risk.


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** Please note that any views expressed herein are those of the author as of the date of publication and are subject to change at any time due to market or economic conditions. The views expressed do not reflect the opinions of all portfolio managers at BlueBay, or the views of the firm as a whole. In addition, these conclusions are speculative in nature, may not come to pass and are not intended to predict the future of any specific investment. No representation or warranty can be given with respect to the accuracy or completeness of the information. Charts and graphs provided herein are for illustrative purposes only.”

 

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