THE most dangerous message North Korea sent Tuesday with its third nuclear weapon test is: nukes are for sale.
The significance of this test is not the defiance by the North Korean leader,Kim Jong-un, of demands from the international community. In the circles of power in Pyongyang, red lines drawn by others make the provocation of violating them only more attractive.
The real significance is that this test was, in the estimation of American officials, most likely fueled by highly enriched uranium, not the plutonium that served as the core of North Korea’s earlier tests. Testing a uranium-based bomb would announce to the world — including potential buyers — that North Korea is now operating a new, undiscovered production line for weapons-usable material.
How will this affect weapons market? change in investor confidence?
Maybe not really relevant and I don't know about stock market, but I actually found this graph very interesting in one Korean blog.
This graph is showing changing KOSDAQ value -Korea Securities Dealers Automated Quotation, basically, electronic stock market, just like NASDAQ- of Feb 12th in Korean time, when the news about Nuclear test was released.
Orange line for individual investors, green line for institutional investors and blue line for foreign investors.
Foreign investors start to sell stocks about 10 billion dollars around 12 pm and quickly rebuy them half an hour later. Blog was saying that 3rd nuclear test had less impact on foreign investors than 1st and 2nd nuclear tests due to investors' learning effect.
What do you guys think about investor confidence here? Do you think there was any impact on US stock market?
I don't think it will have a great deal of influence on US markets. But it does have more affect on South Korean markets, as they are directly attached to their crazy northern brother.
ReplyDeleteRemembering that N. Korea still considers themselves at war with S.Korea, it makes sense that Korean stock prices would fall in the moments right after this test.
The volume and size of Korean stock markets is also much smaller than that of our markets. This means that events like this will prove much more volatile for them. With less commodities and shareholders overall, smaller changes warrant greater results (like the massive decline we see above).
US stocks could be affected in the short-term sense, but it will not be a significant decrease. We must remember that the stock market is at its core-- A thermometer of investor emotions. Will this affect our investors sentiments in the long term? Certainly not.
The magnitude of this 'nuke' test was 7 tons. By comparison, the nuke our nation dropped on Hiroshima IN 1945...was 20 tons.
I think we have to look at North Korea for what it really is. An angry old man shaking his fist at the clouds. The rest of the world (China, Russia, UK, etc) have condemned this N.Korean action. But everyone also knows its real impact is minuscule.
It makes sense that the consumer confidence in the US would fall with this potential threat. This would shift the IS curve to the left and decrease GDP, if you believe in the Keynesian model, which I certainly do. I don't see this being a huge drop in consumer confidence, but it certainly will effect it somewhat. Maybe we could see an increase in the money supply as a result to try to combat the potential drop in GDP, which would also lower the interest rates at this new equilibrium.
ReplyDeleteI don't think the testing itself will have much affect on the US markets however, I do believe the fact that North Korea sells many of its missiles will have a small affect on markets. Because North Korea sells its weapons to whoever pays the largest price, if a weapon of this significance gets in the hands of terrorists who then use it on the US, markets will pay a huge price. My advice is that the United States do its best to monitor North Korea's plans with the weapons.
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