N.Korea-US talks: What outcomes can the meeting produce for the region?

June 11, 2018 12:59 pm

Drama will inevitably surround the negotiation, but the United States and North Korea have a decent shot at making progress toward a political agreement this quarter, something that will set the stage for much thornier and lengthier technical discussions on denuclearization, Business intelligence site Stratfor reported.

“Even if talks appear to break down in the coming months, Pyongyang will avoid more aggressive measures in the near term while working to maintain diplomatic and economic momentum with China and South Korea,” it said.

Jameel Ahmad, Global Head of Currency Strategy & Market Research at FXTM, comments on the potential outcomes to the hotly anticipated US – North Korea summit in Singapore, producing deal winners and losers.

“Singapore will be considered as the capital of the world for at least the early part of this week,” Ahmad starts.

“The unprecedented summit between US President Trump and North Korean leader Kim Jong-un in Singapore is considered a major event in the financial markets and we can expect that it will be closely monitored by investors around the globe.”

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He adds that although meetings between world leaders are typically not considered market events and would usually encourage a muted market reaction, this summit risks being viewed differently.

Such a historic meeting between a very unpredictable United States President and the leader of a nation with nuclear capabilities that has been in complete isolation for decades represents an event that investors will not be able to ignore,” Ahmad opins.

“Assuming that the meeting goes as planned, there are a number of potential winners and losers from alternative scenarios of the summit ending positively or negatively.”

As far as the agenda is concerned, 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 denuclearization.

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 nation’s economy, making the north Korean leaders leader look like a savior for his people.

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Winners from a positive outcome

North Korea: Those who live in North Korea are reported to do so in unimaginable living conditions, but that could all change if the country is pulled out of isolation. The eventual denuclearization would likely open North Korea to international investment and access into the market.

Korean currency: The Korean Won has been lively in the days before the summit. It is expected that the Korean Won would rally as a result of a positive meeting between Trump and Kim Jong-un, mainly because it increases the likelihood of further improved relations between North and South Korea.

Donald Trump: If Trump is able to persuade North Korea to disarm its nuclear weapons, he would achieve a remarkable feat just months before the mid-term elections. The USD could even catch a bid and move higher on optimism that Trump’s foreign policy tactics could encourage world peace.

Currencies pegged to the Dollar: the uncertain nature of US foreign policy and the unpredictable tactics of President Trump were seen as the main catalyst behind the Dollar dropping so sharply from its peak shortly after his inauguration in January 2017. If the USD does receive a bid following the conclusion of the summit, those currencies that are pegged to the Dollar should be able to jump on the wave. The UAE Dirham, Saudi and Qatari Riyal and Lebanese Pound are just a few of the pegged currencies that would benefit from a stronger Dollar.

Stock markets: Uncertainty over the past year or so around Trump – Kim Jong-un relations was seen as one of the major risks for the financial markets. A reduction of this uncertainty should encourage investors to carry on investing in global stocks.

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Losers from a positive summit

Gold: The yellow metal has struggled greatly over the second quarter of 2018 from the unexpected resurgence in the USD. Buying sentiment for Gold is highly reliant on market uncertainty and the potential rally in the stock markets, in addition to lower attraction towards safe-haven assets would be seen as negative momentum for Gold.

Japanese Yen: Similar to Gold, the Japanese Yen relies heavily on its safe-haven status for buying momentum. The potential rally in the stock markets following a positive summit and added risk appetite would consequently be seen as a minus for holding Japanese Yen.

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Potential losers from a negative summit

Chinese Yuan: A leading contender for major loser to a negative outcome in Singapore could unexpectedly be the Chinese Yuan. It would not surprise if President Trump threatens to introduce further trade tariffs on China in an attempt to encourage the country to do more when it comes to influencing North Korea to destroy its nuclear weapons. China is seen as one of the only allies North Korea has.

Korean Won: If the summit takes a negative turn, it can’t be ruled out that the Korean Won would sell off on market uncertainty that North Korea could return to testing nuclear capabilities.

Stock markets / emerging market currencies / South African Rand: depending on the extent to which the summit might go down an undesirable path, there is the likelihood of investors entering a “risk-off” mode if negative headlines overshadow the meeting. Market uncertainty would be seen as a negative for global stocks in the event that risk appetite diminishes and would consequently have a knock-on effect on emerging market currencies.

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Jameel Ahmad is an expert in financial market developments, and specialises in global currencies, commodities and emerging markets. FXTM’s VP of Corporate Development and