Tensions concerning the Korean peninsula are making big headlines again. Obviously, South Korea is very close to the epicenter of the crisis. Hence, one would suspect the country's financial markets to reflect the recent escalation. Looking at price moves, however, it seems that markets do not share the anxiety in the media, as our "Chart of the week" shows. South Korea's currency, the won, has hardly reacted. Recent moves are in no way comparable to the spikes we have witnessed during the financial crisis, let alone during the Asian crisis of the late 1990s. Volatilities implied by option markets, another popular gauge for risk, remain similarly subdued. Performance of South Korean stocks has not deviated much from other equity markets, and the Korea Stock Price Index (KOSPI) is up by circa 16% year-to-date. Taken together, financial markets do not seem to convey a picture that a military escalation is imminent. In that sense, they are sharing the view that Phil Poole, Deutsche AM's Head of Research, has outlined in his recent "Asset Class Perspective" publication.
Sources: Bloomberg Finance L.P., Deutsche Asset Management Investment GmbH; as of 9/7/17