Will North Korea’s Missiles Hit the Stock Market?
North Korea is a problem all out of proportion to its size, which is a trifle bigger than Pennsylvania, its GDP (around $25 billion) or its population, which, at 25 million, is smaller than that of Madagascar.
North Korea has the misfortune to be under the sole leadership of a third-generation dictator who is obsessed with asserting the state’s power. Kim Jong-un has pushed development of both the country’s nuclear arms program and its ballistic missile program.
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The country’s firing of a missile powerful enough to reach the U.S. mainland—and expressly designed to carry a nuclear warhead—has raised the stakes of his confrontation with the world.
While the probability that North Korea actually has the capability to launch a nuclear strike against the U.S., or any other country for that matter, is still quite small, Kim’s determination to have the country taken seriously as a military power is evident. North Korea’s active duty army is the fourth-largest in the world and over nine million of its citizens are in a military or paramilitary organization.
Russia doesn’t seem to care much one way or the other what happens to North Korea, despite its common border. But China, which supplies most of the country’s oil and other commodities, has a much thornier problem. It suits China to have a divided Korea, with the North providing a buffer between itself and the economic powerhouse of South Korea.
But Kim Jong-un is as much of a pain in the, uh, elbow as he is a buffer. North Korea’s missile threat has led the U.S. to install its Theater High Altitude Area Defense anti-ballistic missile system in South Korea. And THAAD’s powerful radar system covers more Chinese territory than Beijing is comfortable with. China is determined to be the dominant military force in its region, and regards THAAD with as much approval as the U.S. regarded Soviet missiles in Cuba back in 1962.
U. S. Stock Market and North Korea
What does all this have to do with the stock market? Good question.
As long as nothing happens, North Korea is just one more international source of irritation and worry for Wall Street, along with Brexit, Ukraine, ISIS and Syria, a possible trade war and the South China Sea.
Some analysts believe that the June pause in the U.S. stock market is at least partly a reflection of investors’ unpleasant uncertainty about what might happen should the U.S. feel compelled to intervene militarily on the Korean peninsula. China would certainly object to military strikes, no matter how limited, in its back yard. And since such action would almost certainly trigger a North Korean invasion of its estranged southern neighbor, the effects are impossible to know, but also impossible to discount.
Markets are always said to climb a wall of worry, and North Korea is certainly a brick in that wall. But they also hate uncertainty! Today, the markets aren’t hugely concerned, but they still keep checking the news feeds from Korea with genuine interest.
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