10, August 2017

Korean peninsula crisis: should we worry?

In one word, no. Because trading is not about worrying but rather finding yourself on the right side of an investment. That said, you should start looking for solid arguments to buy or sell a certain category of assets that would indeed be profitable in periods of high uncertainty.

Earlier this week we’ve talked about large-cap companies as a way to ensure stability in your portfolio. Other assets you should consider investing in are safe havens.

Safe haven assets are investments that could retain their value or even benefit in periods of market turbulence. The most common safe haven asset out there is gold.

But that’s not the only one, market participants also believe currencies such as the euro or the Japanese yen perform well in times of strong uncertainty.

You should be aware that safe havens change overtime and lose their status easily, so it’s important to always keep an eye on their performance when markets stress out.

On Tuesday and Wednesday we’ve seen US markets moving to the downside in the light of heightened geopolitical tensions in the Korean peninsula as President Donald Trump said any threat to his country would be responded with “fire and fury”.

Far from taking a step back, Kim Jong-un’s communist government said it is “carefully examining” a potential strike on Guam, a territory of the United States in the western Pacific.

Last week, the United States pushed a new package of sanctions against North Korea at the United Nations Security Council in response to the firing of several of ballistic missiles.

While it is impossible to predict how a crisis will actually play out in the markets or what precise effects will it have on them, historical data suggest geopolitical crisis had minimal effects on stock prices in a short-term spectrum and almost no impact when looking at the long-term.