Stocks were down again on Wednesday, extending a dismal start to the new year for the markets.
More concerns about a slowdown in China weighed on sentiment. So did lingering fears about the growing rift between Saudi Arabia and Iran. Oil prices plummeted as traders worried about what could happen in the Middle East if tensions escalate.
But there was a new thing for investors to fret over as well on Wednesday: North Korea’s reported claim that it successfully detonated a hydrogen bomb.
North Korea developing significant nuclear capabilities was not at the top of many investors’ lists of things to worry about in 2016. In fact, North Korea didn’t even make it on many lists as a threat.
Eurasia Group, which publishes a widely read list of top 10 global geopolitical risks at the start of every year, excluded North Korea entirely.
The Eurasia list had China and Saudi Arabia on it. ISIS made it as well. So did the possibility of a “Brexit” in Europe.
And there was also a category for “unpredictable leaders.” Russia’s Vladimir Putin, Turkey’s Recep Tayyip Erdogan and Ukraine’s Petro Poroshenko were among that group — but not North Korea’s Kim Jong Un.
So will North Korea wind up being this year’s so-called black swan? A truly surprising event that turns out to have a huge impact?
Some market experts said that’s unlikely. But it’s not helping at a time when investors are already on edge.
“North Korea is something that came out of the blue. It’s hard to know how much it is really weighing on the market because of China and oil. But it’s adding to the unease,” said Bill Stone, chief investment strategist with PNC Asset Management Group.
Of course, further saber rattling by Kim Jong Un would be bad for Asia — particularly South Korea.
To that end, South Korea’s won currency slipped to its lowest level in months on Wednesday. And shares of big South Korean companies, such as Samsung and Hyundai Motor, both fell more than 2% in trading on Seoul’s Korea Exchange.
But the latest nuclear test from Pyongyang (and remember that there have been several over the past few years) shouldn’t cause considerable angst for U.S. investors. The slowdown in China — and what that’s doing to commodity prices — is more worrisome.
“North Korea is more of a political risk than an economic one. That’s why China is a much bigger concern than North Korea. We’ve been worried about China for the past year-and-a-half,” said Paul Nolte, portfolio manager for Kingsview Asset Management.
