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Asian markets react to North Korea sanctions

Asian markets react to North Korea sanctions

The United Nations Security Council has stepped up sanctions against North Korea over the country’s sixth and most powerful nuclear test, imposing a ban on the country’s textile exports and capping imports of crude oil.

It was the ninth sanctions resolution unanimously adopted by the 15-member council since 2006 over North Korea's ballistic missile and nuclear programs.

The markets this morning have shown that Asian stocks continued to climb with Kospi rising 0.19%, and Nikkei increasing 1%. Hang Seng, however, decreased 0.11%. The market has still kept an eye on how the geopolitical tensions would develop further after the UN sanction on Korea.

One of the reasons that global markets is paying a lot of attention to North Korea’s military antics is because of South Korea. The country holds a pivotal position in global supply chains and it has dominant market position in certain industries, particularly consumer and other electronics.

‘The country produces 40% of the global liquid crystal displays and 17% of global semiconductors,’ said Phil Poole, global head of research at Deutsche Asset Management. ‘Its strength are memory chips with more than 70% of global dynamic random-access memory based there. In addition, South Korea is the world's fifth largest exporter.

‘It is feared, therefore, that even a conventional attack on South Korea by North Korea would not only damage that nation's economy, but also cause major disruptions to international supply chains,’ Poole added.

Furthermore, this crisis could hurt trade relations. Given Trump's desire to introduce tariffs and punish China for its “unfair” policies, he could find an excuse to do so if he feels that China does not exert enough pressure on North Korea. Similarly, South Korea could fall victim to Beijing's retaliation measures in case it wants to punish US allies.

‘Regional frictions could harm international trade even more than a pure Sino-American trade dispute as more than half of Asia's export stay within Asia,’ Poole warned.

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