(Aug 21): If you are reading this, then the ultimate worst case scenario of the world being destroyed in a nuclear blast has not happened — yet. Instead, you are probably watching global markets continue their rebound on easing tension between the US and North Korea. Or, if there has been another round of sabre-rattling since we went to print, you might be watching another big selloff and a scramble for safe-haven assets. Whatever the case, the threat that North Korea poses to the rest of the world seems likely to colour market sentiment for some time, potentially dampening confidence in a broad global economic recovery and reshaping views on the prospects of some geographical markets, industries and stocks.

Several analysts and professional investors point out that North Korea has been a source of geopolitical tension for decades. Yet, the stakes have never been higher. For one thing, the whole North Asian region has become a significant part of the global economy over the last 20 years. So, any military conflict in the region would have a significant impact on trade and global supply chains. And, while North Korea has harboured nuclear ambitions since the 1960s, it conducted its first successful nuclear test only in 2006. Kim Jong-un, the current supreme leader of the Democratic People’s Republic of Korea, as North Korea calls itself, has single-mindedly continued the nuclear and ballistic missile programmes since he took over in 2011.

North Korea now claims that continental US is within striking distance. That puts Kim in a stronger position than ever to extract concessions from major global powers and ensure the survival of his regime. “Whether it’s more nuclear tests or missile tests, or whether it’s just more bellicose language coming from Pyongyang, this is part and parcel of a long-standing pattern of behaviour from North Korea. They will do everything that they can to provoke, to intimidate,” says Bernard Loo, associate professor at the Institute of Defence and Strategic Studies, which is part of the S Rajaratnam School of International Studies at Nanyang Technological University.

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