By Joyce Yu
Philadelphia, PA–Global stocks slumped after North Korea fired a missile over Japan on Tuesday morning.
U.S. stock futures fell by between 0.6% and 1% and the closely watched VIX volatility index spiked by 24%. The Dow Jones industrial average was muted Monday, while the S&P 500 and the Nasdaq drifted higher 0.1% and 0.3% respectively.
Overnight trading in Asia markets suffered. South Korea’s benchmark Kospi index fell as much as 1% in morning trading but recovered most of it in the afternoon, slipping 0.2% at closing. Japan’s Nikkei slumped 0.5%.
Markets in Europe opened sharply lower, on track for their biggest one-day drop in two months. Stocks in London and Paris slumped 1.4% while Frankfurt’s DAX shed 1.7%.
North Korea fired a ballistic missile on Tuesday that flew over Japan and landed in the Pacific about 1,180 km (735 miles) off the northern region of Hokkaido.
The Asian country has conducted dozens of ballistic missile tests under young leader Kim Jong-Un, but firing projectiles over mainland Japan is his first, according to a Reuters report.
Chihiro Ohta, a Tokyo-based senior strategist at SMBC Nikko Securities told the Bloomberg that “Some observers had thought the U.S. and North Korea were pursuing discussions behind closed doors, but it turns out North Korea continues to pursue missile development.” “The risk-off stance is likely to continue even if the U.S. responds calmly.”
The missile launch raised worries that North Korea crisis could further intensify, investors as a result rush to safe haven assets such as gold, the Japanese yen and the Swiss franc. Gold added 1.2%.
Irene Goh, head of multi-asset solutions for Asia Pacific and a member of the diversified multi-asset committee at Aberdeen Asset Management shared with the Reuters, “Investors should look to protect themselves. The question is where to find safe shelter given how asset prices have become divorced from fundamental value… We believe the safest spot to be is not one place, but many. ”
As the world’s biggest creditor nation, Japan’s currency tends remain resilient during times of geopolitical or financial turmoil and the market assumes that Japanese investors will repatriate funds should a crisis materialize.
In his daily note to clients, Alessandro Balsotti, head of asset management at JCI Capital Limited, on the other hand, noted, “The North Korean escalation has triggered a significant risk-off move. However … observers believe it won’t be enough to trigger a material reaction from the United States-South Korea axis. It wouldn’t be surprising, then, if investors take advantage of this geopolitical fear to buy the dips.”
