Free marketing & business support,
exclusively for UK financial advisers

Tensions with North Korea put pressure on Asian markets

August 2017

An increasingly strained relationship between North Korea and the international community culminated in North Korea’s decision to fire a ballistic missile over Japan. The yen rose against the US dollar to its highest level for four months, undermining sentiment towards big Japanese exporters and driving up the share prices of more domestically-focused medium-sized companies.

  • Japan’s economy has achieved six consecutive quarters of positive growth
  • The RBA maintained its key interest rate at 1.5%
  • High levels of household debt could spur the Bank of Korea to tighten monetary policy

To view the series of market updates looking at the markets through August, click here


Mounting tensions between North Korea and the rest of the world prompted investors to make a dive for perceived “safe-haven” assets during August. The strained relationship between North Korea and the international community culminated in North Korea’s decision to fire a ballistic missile over Japan, and the yen rose against the US dollar to its highest level for four months, undermining sentiment towards big Japanese exporters and driving up the share prices of more domestically-focused medium-sized companies. As a result, the Nikkei 225 Index fell by 1.4% over August, while the Topix Index edged up by only 0.1%. In contrast, the TSE Second Section Index - which represents Japanese mid-caps – posted an increase of 4.9% over the month.

“The yen rose against the US dollar to its highest level for four months”

Japan’s economy expanded more strongly than expected during the second quarter of 2017, posting an annualised growth rate of 4%, compared with first-quarter growth of 1.5%. Growth has been fuelled by a rise in private consumption and capital spending, and by strengthening equity markets. To date, the country’s economy has achieved six consecutive quarters of positive growth.

The Reserve Bank of Australia (RBA) expects Australia’s economy to post annualised expansion of “around 3% over the next couple of years” as inflation rebounds, underpinned by dwindling spare capacity in the labour market which is expected to provide a boost for wage growth. The country’s rate of unemployment is expected to edge below 5.5% by the end of 2019. Nevertheless, the RBA reiterated its warning that sustained appreciation in the value of the Australian dollar could put a brake on economic growth and inflation. The RBA maintained its key interest rate at 1.5% at policymakers’ August meeting. Over the month as a whole, the ASX All Ordinaries Index remained largely unchanged.

South Korean share prices came under pressure during August, and the benchmark Kospi Index fell by 1.6% over August. During the month, the heir-apparent to South Korean giant Samsung, Lee Jae-Yong , was sentenced to a five-year prison term for corruption. The Bank of Korea (BoK) maintained its key interest rate at 1.25% in August, citing an increase in volatility in global financial markets that has been exacerbated by geopolitical tensions and changing expectations relating to the monetary policies of major countries. Looking ahead, the central bank is widely expected to implement tightening action, spurred by South Korea’s high levels of household debt.


A version of this and other market briefings are available to use in our newsletter builder feature. Click here


Comments

You need to log in to comment.