Business World

Thursday 21 September 2017

Korean crisis triggers shift from stocks to safe havens

A man walks past electronic boards showing Japan's Nikkei average (L), the Dow Jones Industrial Average (2nd L) and foreign exchange rates outside a brokerage at a business district in Tokyo, Japan
A man walks past electronic boards showing Japan's Nikkei average (L), the Dow Jones Industrial Average (2nd L) and foreign exchange rates outside a brokerage at a business district in Tokyo, Japan

President Donald Trump's warning that North Korea faced "fire and fury" and Pyongyang's threat of possible retaliation drove investors out of stocks on Wednesday and into the yen, Swiss franc, gold and government debt.

US stock index futures fell, with the S&P 500 indicated to open down 0.4pc after share prices fell in Europe and Asia.

The Swiss franc, by contrast, was on track for its biggest single-day rise against the euro in more than two-and-a-half years.

"Trump's comments about North Korea have created nervousness and the fear is if the President really means what he said: 'fire and fury'," said Naeem Aslam, chief market analyst at Think Markets in London.

Trump's remarks on Tuesday that North Korea would face "fire and fury like the world has never seen" pushed Wall Street lower on Tuesday and drove up the VIX "fear gauge" of expected volatility on the S&P 500 higher.

The VIX rose further on Wednesday, rising as far as 12.11, its highest in almost a month.

A spokesman for the Korean People's Army said in a statement on Wednesday it was "carefully examining" plans for a missile attack on the US Pacific territory of Guam, which has a large US military base.

Tokyo's Nikkei 225 share index closed down 1.3pc at its lowest since June 1 as the strong yen hit exporters, while South Korea's KOSPI index fell 1.1pc to seven-week lows.

South Korea's won currency dropped 0.9pc against the dollar to its lowest close since July 13.

In Europe, the pan-continental STOXX 600 index fell 0.9pc, with falls deepening after a car rammed a group of soldiers in Paris, injuring six, in what officials said was a suspected terrorist attack.

France's CAC dropped 1.6pc and Germany's DAX fell 1.3pc.

MSCI's main index of Asia-Pacific shares, excluding Japan, was last down 0.6pc. Chinese blue chips closed flat but Hong Kong's Hang Seng fell 0.4pc.

Instead, investors turned to assets that tend to benefit in times of geopolitical and financial stress.

The Japanese yen strengthened by 0.5pc to around 109.70 per dollar. Japan is the world's biggest creditor country and there is an assumption investors there will repatriate funds in a crisis.

The Swiss franc reversed a two-week losing streak and was also on track for its biggest daily gain against the euro since the Swiss National Bank removed its cap on the currency in January 2015. It was last up 1.2pc at 1.1305 per euro. (Reuters)

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