The outbreak of a military conflict between the United States and North Korea would threaten the entire Asian “economic ecosystem”, analysts have warned as the head of the Asian Development Bank urged the two sides to find a peaceful solution.
North Korea this week accused the US of pushing the Korean peninsula to the “brink of nuclear war” after a pair of bombers flew training drills with the South Korean and Japanese air forces in a show of strength.
Jesper Koll, a veteran Japan analyst and chief executive officer of investment company Wisdom Tree in Tokyo, said heightened country risk was a “clear negative for North Asia”, with the Korea-Japan-China triangle at the centre of attention. “It is not just about one or two isolated markets, but the entire economic ecosystem is potentially threatened,” Koll told GlobalMarkets.
While a conflagration is still seen as unlikely, even the war-like rumours threaten to damage Asia’s image as an investment destination.
50 years of stability
ADB president Takehiko Nakao told GlobalMarkets that the possibility of a confrontation over North Korea was a “very important issue both for the region and for the international community”.
“I hope this issue can be resolved soon and in a peaceful manner,” he said. “For 50 years, we have had geopolitical stability in Asia and if we cannot keep this stability we lose much. Leaders must make utmost efforts to ensure that we keep stability.”
However Kim Eng Tan, senior director, sovereign ratings Asia Pacific, S&P Global Ratings in Singapore, said there was only “small probability” recent events could have a “lasting impact” on investor perception about Northeast Asia generally.
“People are not seeing risk rising in a meaningful way,” Tan told GlobalMarkets. “Nobody wants a war — least of all North Korea,” he said, adding that the country “will not do anything that threatens its own existence”.
Koll added that “the real money is made by cooler heads who focus on the economic potential rather than the political noise — including the sabre rattling around North Korea.
“For global markets, [the threat of war] is counterbalanced by the enormous future potential of the region but this year, political uncertainty and unpredictability is tilting the balance to the negative.”
Tensions on the Korean peninsula have been high for weeks, driven by concerns that the reclusive state might conduct its sixth nuclear test in defiance of pressure from the United States and also from China following President Xi Jinping’s recent summit with Trump.