Investment managers take note! We saw a slight market meltdown these last two days precipitated by a country whose economy is peripheral to the world, North Korea, but whose geopolitical importance matters to some of the world’s greatest powers: US, China, Russia and Japan.
Earlier this year, the ambiguous and confused signaling with the USS Carl Vinson Carrier Strike Group reminded us that the risk of accidental escalation on the Korean peninsula is real. While bellicose rhetoric from North Korea, normally couched in defensive terms (if US touches our soil, we will bomb Austin/Guam/Seoul…), is par for the course, it is now Trump’s mirror threats of unleashing “fire and fury” on the country that has spooked markets.
So here we have one of the most unimportant economies suddenly becoming central to world stability. An issue unimportant until it becomes important. To be fair, a few portfolio managers and hedge funds have reached out earlier this year to consult on the issue, but for most, this seems like one of those “black swans” that might end up having disproportionate impact on the world.
So what’s at stake? The risk of accidental (or even deliberate) escalation triggers a conflict that could draw in China, Russia, Japan and the US on the Korean peninsula, nuclear weapons and devastation of both North and South Koreas. This scenario is by far the most consequential.
Not all black swans are bad. Trump’s threats could have the perverse effect of forcing all parties to realize some compromise is necessary to prevent the horrific consequences above. This could motivate a resolution that has stalled all parties balking at the political costs of compromise.
We are monitoring the situation, which we at the moment continue to believe will be under control. And in the meantime, our volunteer-led workshops continue which we believe is a crucial mechanism for maintaining bridges to key stakeholders inside and outside the country.
Our workshop in July/August led by volunteers from Hong Kong, Canada and Vietnam