South Korean Credit Risk Spikes Above China's As Kim Chooses "Path Of No Return"

For the first time in four years, the credit market sees more risk of a South Korean sovereign default/devaluation than China.

After months of hit money flows in EM stocks sending KOSPI to record highs in the face of rising nuclear tensions with its neighbor, this week saw investors crack as Daiwa analysts warned "Kim looks to have chosen a path of no return."

As a North Korea war potential approaches, with the regime said to have attack ready nuclear missiles, Daiwa analysts Kevin Lai and Olivia Xai note the awkward position the US military and diplomatic corps finds itself.

“It seems the US has miscalculated the possibility and time needed for North Korea to make a program deliverable,” they wrote, and there is a sense the point of no return is passing.


“The window for the US to ‘denuclearise’ the North has almost shut.”

Escalating tensions over North Korea have also sent the dollar surging against the won to test a critical downtrend line resistance in a triangle formation.


The situation looks tenuous, Daiwa notes:

By making such a promise, Kim looks to have chosen a path of no return. If he delivers the plan, the US will almost certainly respond aggressively with a range of military options — and the situation will escalate to a major military conflict involving several more parties, including South Korea and Japan. There would be little room for either side to step back. If Kim doesn’t deliver, he risks creating a political crisis for himself and permanently weakening his regime. He is now in a position similar to the one Saddam Hussein was in before Desert Storm. His primary goal is regime survival. Giving up nuclear weapons would mean abandoning that goal; bending to US pressure would leave him politically vulnerable at home.

While a nuclear war appears a distinct possibility, stock markets are acting rather benign.

“Korean assets have seen a modest ‘risk off’ over the past two weeks, but this most likely reflects a modest cooling in global growth data,” observed Goldman Sachs analysts Charles Himmelberg, Goohoon Kwon and James Weldon in an August 9 report.



The South Korean KOSPI stock exchange, while trading lower since July 24, remains near all-time highs.

They think too little geopolitical risk has been priced into the market.

“We still suspect that investors are more concerned than markets reveal,” the Goldman report mused.


“Even though tensions continue to mount and North Korea’s nuclear program continues to advance, it appears markets have yet to see enough evidence that this time is different.”

As The Wall Street Journal notes, so far, markets have shown a muted impact.

“The small size of the moves (on a historic basis) is reflective of the extreme difficulty the market faces in pricing in the ramifications of a nuclear confrontation,” said analysts at Rabobank in a note Friday.


In recent years repeated flareups between the U.S. and North Korea have been resolved, or at least not escalated, and market reactions have reversed relatively quickly.


“For decades, complacency has been the ‘right trade,’ when it comes to North Korea,” said global markets analysts at Goldman Sachs in a note this week. “More often than not, market participants have been rewarded for fading negative price moves rather than hedging them.”


“The market’s view is likely too sanguine in short term,” according to analysts at Citi. “This reflects investors’ experience that geopolitical rhetoric can quieten as quickly as it escalates, and a pervasive belief that the true risk of military confrontation is minimal.”

There are different endgames, with the US simply tolerating North Korea possessing nuclear weapons and moving forward a distinct probability path. Regardless of the outcomes, the markets may be mispricing the situation, particularly if it turns negative.

“Financial markets aren’t good at thinking about geopolitical risks,” the Daiwa report noted. “If this crisis escalates further, markets could well find themselves in a state of shock.”


GUS100CORRINA Sat, 08/12/2017 - 18:29 Permalink

South Korean Credit Risk Spikes Above China's As Kim Chooses "Path Of No Return"My response: Monday looks to be shaping up to be a very interesting day in the markets if the combative rhetoric keeps up.Observation: LONG VOLATILITY!!!

LetThemEatRand Sat, 08/12/2017 - 18:45 Permalink

So Kim has passed the "point of no return," necessitating armed conflict, because he is arming his country with the same weapons long held by the US, China, Isreal, Pakistan, India, Russia, France, Ukraine, England, Spain, etc.  Got it.  

fattail Spiro The Greek Sun, 08/13/2017 - 08:26 Permalink

I would say the main distinction is Saddam said he didn't have them and wasn't trying to get them and Fat Boy has, essentially, acknowledged that he has them and is trying to, or already has developed the capability to hit anywhere in the US.Whether he has them or not is irrelevant since Fat Boy has provided the MIC the pretext for regime change with their favorite tool, preemptive war.

In reply to by Spiro The Greek

Xredsx Sat, 08/12/2017 - 18:58 Permalink

Bye bye globalisation. Has anyone thought that maybe the Rothschilds only control the Central Banks, you know, lend the money to the rule makers of governments. But it is the Crown that actually owns them. The Fed. Just wondering because i was just watching the new Tarzan film. 

peopledontwanttruth Xredsx Sat, 08/12/2017 - 19:06 Permalink

Watched that movie twice. Good movie. I've always wondered about the Crown as far as GB still running everything with the financial pukes lording it over them. My reasoning is as follows and would love to have others either add to it or correct me on points that I may have wrong.

When the pound ceased as the reserve currency. They seen it coming after WWI so made plans to move their operations from GB WITH GB blessings, The banksters then set their sights on the rich and powerful USA. Through FDR they stole the gold, set up the Great Depression and WWII. Now with the world has caught on and has the knowledge of it, they can't find another host to suck dry, as the world moves away from the dollar this banking whore with her military beast won't go quietly but go down in flames

In reply to by Xredsx

Xredsx Sat, 08/12/2017 - 19:20 Permalink

Well i have always said that the crown will take back control by bringing down the corruption that as swept the nations, just like a thief in the night. 

richsob Sat, 08/12/2017 - 19:26 Permalink

It doesn't always make any difference who is right and who is wrong.  Suppose I'm wrong as sin and I'm in a cussing match with Mike Tyson, who some people feel is wrong.  At some point the right/wrong question means nothing if I poke Tyson in the eye.  Mike would proceed to kick my ass into next week and that's all there is to it.

my new username Sat, 08/12/2017 - 20:06 Permalink

My bet - the Chinese are using NK as a pawn, to see how effective US defense/offense capabilities are.They do not know US capabilities in the Pacific Theatre, but they soon will - without having to reveal their own tactics and strategies.

east of eden Sat, 08/12/2017 - 20:12 Permalink

Well the Bank of Japan and the Swiss National Bank own most of the  DOw & S&P now, and they aren't going to sell, so maybe we now have a market that never breaks lower.

east of eden Sat, 08/12/2017 - 20:12 Permalink

China has already made it's position clear - If NK starts something, China will not intervene on their behalf. Therefore, I find it unlikely that Kim will do anything that would lose him the support of China (and by extension, Russia). He needs them and they know it.

peopledontwanttruth Sat, 08/12/2017 - 20:13 Permalink

I think even the CBs of countries aren't safe to those who control even them. This Satanic group is way more sinister than our wildest imaginations could take us. World dominance and or destruction is the only thing they know and care about.

Able Ape Sat, 08/12/2017 - 20:33 Permalink

NEVER underestimate your enemy - Bye, Bye American Pie - as usual, the US has proved that it is monumentally inept at everything.  The MIC Potemkin village is going to be severely tested in the coming hours, days, weeks, and months... Ike was right, the MIC fucked America seven ways to Sunday and the chickens are coming home to roost...

joey stalin Sun, 08/13/2017 - 00:16 Permalink

Daiwa=Japs.  The idiot, suicidal Japs have been behind much of this warmongering--especially that bullshit Jap government report that the N Koreans have miniaturized nukes.  Maybe the Japs should take a look at a map to see that ALL of their nuclear reactors are within range of N Korean intermediate range missiles--which ARE real and fairly accurate.

ds Sun, 08/13/2017 - 02:29 Permalink

Great in the belated credit spikes in SK. Greater should it be an extension to the EM Asia economies filled with crony governments and their vanities (currencies). They are morphing to be China's banana republics with some exceptions as US bases. If you want to invest (not trade), why bother with the peripherals and just stay with the centers (China for Asia mainly) and some chips for the US bases. 

gregga777 Sun, 08/13/2017 - 03:08 Permalink

Afghanistan had no nuclear deterrent. The Anglo-Zionist Empire chose war.

Iraq had no nuclear deterrent. The Anglo-Zionist Empire chose war.

Libya gave up their program to develop a nuclear deterrent. The Anglo-Zionist Empire chose war.

Syria had no nuclear deterrent. The Anglo-Zionist Empire chose war.

North Korea has developed a credible (?) nuclear deterrent. Will the Anglo-Zionist Empire choose war again?

But, how does war against North Korea help Apartheid Israel?

Dirtnapper Sun, 08/13/2017 - 04:18 Permalink

There is an easy (but takes testicles) way to stop all this crap.  Give China 90 days to fix NK once and for all OR Trump will assist in a fast track to JP and or SK the technology, resources, facilities, and scientist needed to build portable H Bombs in the fastest possible way.  That is one thing China can not tolerate is having it's neighbors nuke up.