“Asia Trades as if North Korea Wasn’t a Problem’: How Top Bankers Think About the Hermit Kingdom” by Elena Holodny outlines the tumultuous nature of North Korea and possible impacts to the global economy. North Korea isn’t a country that investors generally look at, but given its recent actions on the geopolitical stage, an assessment of the North Korean economy is extremely interesting. One major question, is how do markets assess risks of countries like North Korea without overreacting in the short term or refusing to invest completely? Any turbulence in North Korea would inevitably spill over into emerging and developed markets like China and South Korea. Especially now that North Korea has nuclear weapons, investors are trying to model and predict the likelihood and potential impacts of a shock event, like a military conflict. This type of event has not occurred for a long time, and would have catastrophic consequences for the global economy. The article argues that there is no real way to predict what exactly would happen should North Korea be involved in a military conflict. The nation is not directly connected to global markets, but reverberations would be felt in many other markets. It is also to take into account the overall macro situation, but also the institutions of markets. The article mentions governance, an independent judiciary, freedom of press, and problems of corruption as institutions to take into account specifically when analyzing North Korea. For many investors, the fact that the country and the economy are controlled by a single person results in a risk premium so high they simply won’t risk getting involved. Unfortunately, this can translate a complete lack of acknowledgment of North Korea as a threat to the global economy. Regardless, the future of North Korea is tenuous; bankers and politicians alike should prepare for the worst and hope for the best.
Sunday, April 23, 2017
Asia Trades as if North Korea Wasn't a Problem
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3 comments:
It seems as though people aren't too concerned over North Korea and what they are doing. North Korea has a ton of potential to become a huge threat to the world economy if they get involved in any military conflict.
I think also being able to predict how various countries interact with North Korea is just as predictive as understanding North Korea in and of itself. If we know that certain presidents or dictators that communicate with North Korea are hostile or conflict oriented than that may also be a good indicator that North Korea may be reacting in a volatile manner thats not conducive to certain sectors of the economy.
This is an interesting article. I think one reason that people do not care much about the North Korea is because they do not have trade business with North Korea, so the intensive situation will not affect them directly. Also I agree with the point that we actually do not realize North Korea. What's more, I think people tend to believe that it's not that easy to declare a war between North and South Korea because both sides will loss much more than they get in the war now. However, I think we should still pay attention to the intensive situation because nobody do not want to live in peace.
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