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Money managers react to Kim-Trump agreement

North Korea's leader and the US President signed an agreement outlining various commitments, including denuclearisation, on 12 June in Singapore

Jason Low, DBS Private Bank

Senior investment strategist

Little market impact post the summit, with investors already pricing in this outcome ahead. The summit met expectations, which were already tempered before the meeting.

Both sides signed an agreement to establish new relations and for North Korea to work towards complete denuclearization.

The signed document though lacked in detail. We note the words “verifiable” and “irreversible” were left out.

There was also no clear timetable for future meetings or scope of denuclearization. We think it’s likely going to be a long and bumpy road towards complete denuclearization.

Looking at risk-aversion indicators like USDJPY, markets barely moved from start of summit till now. For markets, the conclusion of this summit removes a layer of geopolitical uncertainty, as we re-focus on the upcoming three big central bank (Fed, ECB, BOJ) meetings later this week.

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Jason Low, DBS Private Bank

Senior investment strategist

Little market impact post the summit, with investors already pricing in this outcome ahead. The summit met expectations, which were already tempered before the meeting.

Both sides signed an agreement to establish new relations and for North Korea to work towards complete denuclearization.

The signed document though lacked in detail. We note the words “verifiable” and “irreversible” were left out.

There was also no clear timetable for future meetings or scope of denuclearization. We think it’s likely going to be a long and bumpy road towards complete denuclearization.

Looking at risk-aversion indicators like USDJPY, markets barely moved from start of summit till now. For markets, the conclusion of this summit removes a layer of geopolitical uncertainty, as we re-focus on the upcoming three big central bank (Fed, ECB, BOJ) meetings later this week.

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Brock Silvers, Kaiyuan Capital

Managing director

Expectations for the Trump-Kim summit were restrained, and while details remain to be clarified, the overall results are surprisingly strong.

Today’s general denuclearization agreement should provide a boost to regional equities, with South Korea and China leading the way.  

The real summit impact, however, will be further revealed as US Secretary of State Mike Pompeo now visits Beijing and other capitals.  

Markets will take significant comfort from today’s events, but equally important announcements will follow shortly, still carrying the potential to roil markets in Asia and globally.

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Eli Lee, Bank of Singapore

Head of investment strategy

We anticipate a near-term easing of market risk sentiment, and an overall relief rally as the trend of nuclear escalation between the two countries fades in the meantime.

The South Korean and Japanese markets are most sensitive to North Korean risk and would benefit most from a successful summit.

In the long run, however, the market will discern if there are deeper economic implications, particularly for South Korea, aside from a general uplift in business confidence and investor sentiment.

Far right-tail outcomes, such as the opening up of North Korea or the Korean reunification, will also be reassessed.

Importantly, the root cause of long-term nuclear tension is, of course, the existence of North Korea’s nuclear program.

While dialogue and friendly relations are positive developments, the real impact of the summit will be measured by any progress made towards the difficult and complex goal of CVID: the “complete, verifiable and irreversible denuclearization” of the Korean peninsula.

No one who has bet on Korean denuclearization has ever won.

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Mark Mobius, Mobius Capital Partners

Founding partner

The summit is a hugely positive development for Asia and the rest of the world. We have been eagerly anticipating peace on the Korean peninsula for years, a topic that Trump and Kim have addressed in the joint statement.

While there is no promise of reunification coming out of the summit, this event could perhaps serve as the single most significant economic event transforming Asia and providing immense opportunities for citizens and investors alike

The negotiations at the Summit could lead to in an equally transforming process as the German reunification and the fall of the iron curtain.

Only companies with high corporate governance standards are prepared for increasing geopolitical tensions impacting businesses around the world.

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John Woods, Credit Suisse

Asia-Pacific chief investment officer

The most likely expression of renewed optimism would be a reduction of the risk premium currently imposed on South Korean assets so that a gradual re-rating would be possible.

Ultimately though, what makes all this real and meaningful will be the monitoring regime. This is where the rubber meets the road. This is also what sank the Six Party Talks in 2009.

A combination of more realistic goals (non-proliferation versus disarmament), increased desperation from Pyongyang and a more cooperative China could make the difference this time around.

An agreement on a monitoring regime that obliges China to play a part in ensuring its success could be seen as material progress from the impasse of 2009.

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Silvia Dall'Angelo, Hermes Investment Management

Senior economist

The significance of today’s meeting between Trump and Kim is quite dubious.

While the display of a bromance between the two leaders is a welcome development, boding well for future negotiations, the agreement they signed contained very little in the way of substance.

The suspicion is that today was a more of a distraction from serious issues for the global economy – notably concerning trade – still loom in the background.

Starting from the encouraging developments, the chemistry between Trump and Kim was positive, suggesting there is an open channel for negotiations between the countries going forward.

However, the document the two leaders agreed on delivers only vague assurances and commitments, failing to detail a plan for immediate action.

Meanwhile, the elephant in the room is the sustainability of global trade as the US administration has been questioning existing trade policies.

 

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Tuan Huynh (pictured) and Jason Liu, Deutsch Bank Wealth Management

Asia-Pacific CIO and head CIO office Asia

President Trump has said that he will stop planned U.S./South Korea “war games”, but has emphasized that sanctions will not be lifted only when the U.S. is sure that nuclear arms “are no longer a factor”.

This process could take time, and Deutsche Bank Wealth Management would caution that the agreement does not mean a complete end to North Korea geopolitical risks in the short or medium term as both Trump and Kim have proven to be unpredictable leaders in international policies.

Another uncertainty is China’s involvement, both the areas of North Korean denuclearization and any opening-up of its economy.

If the political rapprochement process continues to run smoothly, regional markets seem likely to continue to focus instead on global economic and policy developments.

Deutsche Bank Wealth Management’s economic and asset class forecasts remain unchanged.

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Tan Min Lan, UBS Global Wealth Management

APAC head of chief investment office

Progress toward a peaceful resolution is welcome, but it is unlikely to have a significant near-term impact on financial markets.

Investors appeared relatively unconcerned by the escalation of tensions on the peninsula last year, with North Korean missile tests corresponding with an average single-day decline of just 0.1% in South Korean equities.

As such, it is perhaps unsurprising that a reduction in those tensions has so far failed to move markets. Both the KOSPI and the Korean won ended the day flat.

This supports our view that there is minimal scope for a rally on any subsequent progress in negotiations.

We remain overweight global equities. While the summit is unlikely to be immediately consequential for markets, the reduction in tail risks related to North Korea's nuclear weapons program could help reduce risk premia over the medium term, and help refocus investor attention on strong earnings and global economic fundamentals.

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