CFA Society Singapore
SINGAPORE (June 11): With North Korea’s denuclearisation set to be the major point of discussion between US President Donald Trump and North Korean leader Kim Jung-Un during their June 12 summit in Singapore, ForexTime (FXTM) sees a number of potential market winners in the case of a positive meeting outcome.
“President Trump has made no secret of his dislike for nuclear weapons and is expected to push hard for the ultimate goal that North Korea proceeds with denuclearisation,” says the forex broker’s Global Head of Currency Strategy & Market Research, Jameel Ahmad, in a recent op-ed titled Potential winners and losers from unprecedented US-North Korea summit: FXTM.
“In return for giving up its nuclear weapons, it is expected that international sanctions on North Korea would gradually be relaxed and the United States could potentially offer to invest, and help build the North Korean economy,” he adds.
According to Ahmad, gainers from the eventual denuclearisation of North Korea are namely:
1. Global stock markets: Global markets will stand to enjoy improved risk appetite in view of reduced uncertainty around Trump-Kim relations. This in turn would be seen as encouragement for investors to carry on investing in global stocks.
2. Trump & North Korea: In Ahmad’s view, the upcoming summit is perhaps the most significant moment for Trump ever since he became president of the US. On one hand, Trump stands to achieve a “remarkable feat” of disarming North Korea of its nuclear weapons just months before the mid-term elections, while North Korea also stands to benefit from being pulled away from isolation, as denuclearisation would likely open the republic to international investment and access into the market.
3. Kim Jong-Un: Agreeing to denuclearise could be an enticing move to Kim, opines Ahmad, as the future of a more prosperous North Korea is likely to portray him as a hero back at home. “That legacy would live long in the memory as a leader who took his homeland away from global isolation,” remarks the head of research.
4. US Dollar and currencies pegged to it: Ahmad believes the USD could move higher on optimism that the US President’s foreign policy tactics could encourage world peace. In such a case, currencies pegged to the Dollar such as the UAE Dirham and Saudi and Qatari Riyal and Lebanese Pound, would be able to jump on the wave.
5. Asian & high-yielding emerging market (EM) currencies: Noting that the Korean Won has been “lively” in the days in the days before the summit, Ahmed expects it to rally as a result of a positive meeting on the signal of further improved relations between North and South Korea. Other Asian EM currencies including the Singapore dollar, as well as higher-yielding currencies that are strongly reliant on investor risk appetite, could also benefit from the improved market sentiment, he adds.
On the flip side, Ahmad points out that not everything or everyone would stand to benefit from a positive summit.
Gold is one such as example, as a potential stock market rally and a less safe-haven attraction for investors would signal negative momentum for gold. Similar risks are faced by the Japanese Yen, which relies heavily on its safe-haven status for buying momentum.
“When considering the complexities of Trump and Kim Jong-Un getting together, there are a multitude of ways that the summit could potentially impact the financial markets. Although President Trump has said himself that he is meeting the North Korean leader on a ‘mission of peace’ and by that account the summit should conclude on a positive note, this is still considered as a major risk event for the financial markets and one investors will need to closely monitor,” concludes the head of research.