Escalating tensions relating to North Korea’s increasingly prominent nuclear ambitions have caused ETFs tracking risk assets in the Asia Pacific region to fall on Monday 4 September. The market slump followed an earthquake in North Korea on the previous day, later confirmed as being triggered by a successful nuclear weapons test.
The successful test detonation of a nuclear weapon by North Korea prompted major military drills by its southern neighbour.
The KOSPI, the broad South Korean stock market index, opened nearly 2% down from Friday’s close before recovering somewhat to finish the session down 1.2%. ETFs tracking broad equity indices in Asia and Europe were also down on Monday, albeit to a lesser degree, with the US markets closed for Labor Day.
Europe-domiciled ETFs that give exposure to South Korea equities are available from providers including iShares, Lyxor, HSBC and Deutsche Asset Management. The largest of these is the iShares MSCI Korea UCITS ETF (LON: IKOR), which has $814 million in assets under management (AUM) and a total expense ratio (TER) of 0.74%. The cheapest is the HSBC MSCI Korea UCITS ETF, which has a TER of 0.60% with AUM of $10m.
The recent nuclear test comes after a series of missile tests over the past few months and just days after North Korea launched a missile that traveled over a northerly Japanese island before landing in the sea. The recent increase in public displays of military antagonism by leader Kim Jong-un, has also led to an increase in the price of safe haven assets. Gold jumped 1% over the weekend and now stands at $1,334/oz, its highest level since September 2016.
Martin Arnold, director, macro strategist at ETF Securities, said: “Sabre-rattling from North Korea has boosted gold to the highest level in 12 months, regaining all losses since Donald Trump became president. Continued uncertainty over North Korea’s intentions regarding missile testing and the concerning response from the US is likely to keep gold supported in the near-term.
“The improving global economic backdrop will take a back-seat for gold prices until geopolitical tension eases, something that will likely be prolonged with a less than statesmanlike attitude from the Trump administration to foreign affairs.”
Investors looking for gold exposure could try the ETFS Physical Gold (LON: PHAU), which has AUM of $6.2 billion with a management expense ratio of 0.39%.