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Investment nerves jangle as North Korea nuclear rhetoric builds

Retail investors have been warned to hold their nerve as escalating rhetoric between North Korea and the US prompted safe haven assets to rally this week.

The Swiss franc and gold were among the asset classes to jump in value as Donald Trump, the US president, vowed to respond with “fire and fury” if Pyongyang acted on a threat to attack the US territory of Guam. “Military solutions are now fully in place, locked and loaded, should North Korea act unwisely,” the president tweeted on Friday.

European and US stock markets both slid from Wednesday onwards, while the FTSE 100 also declined as oil and mining stocks were hit.

However, fund managers said the threat of nuclear strikes was not necessarily what was rattling markets — but rather that the exchange between Mr Trump and Kim Jong Un, the North Korean leader, had reminded investors of political risk more broadly.

“North Korea is a good excuse, but it’s more just a reminder that markets have had a good run over the summer and people have now been looking to take profits,” said Tom Becket, chief investment officer of Psigma Investment Management.

“Asset markets are at extremely high values, but geopolitical risk around the world remains extremely high,” he added.

Ben Seager-Scott, investment director at wealth manager Tilney, agreed that the tensions between the US and North Korea were just one factor rattling markets, and warned investors not to take sudden action.

“Markets move for a variety of reasons, and different people are looking for different things — this means one event can mask another,” he said. “Sometimes events can act as a catalyst for other concerns.”

Mr Seager-Scott suggested that other factors in the economy could be worrying investors more than the prospect of a war between North Korea and the US.

“If you went aggressively defensive every time Kim Jong Un did something frightening, you’d never invest in anything,” he said.

The Swiss franc, which is favoured for its stability, strengthened by 1.5 per cent against the euro on Wednesday in the largest one day change since the Swiss National Bank scrapped its de facto currency peg with the euro in January 2015.

Gold hit a two-month peak this week, while the Japanese yen also rallied.

Mr Beckett at Psigma said he had removed Japanese equities from his portfolio over concerns at the prospect of them performing poorly if the yen strengthens further.

The yen — considered a haven currency by many investors — often strengthens in times of crisis in Asia as Japanese businesses return assets to their home currency, while overseas investors are also likely to buy the currency.

Wealth manager Ben Yearsley warned investors “not to be too clever” — but admitted he was holding more cash in his own Isa and Sipp (self invested personal pension) to allow him to buy shares if equity market values fell to attractive lows.

“I do think that markets are ignoring the reality of what’s going on at the moment, there is political risk in parts of the world,” said Mr Yearsley. “Equity valuations are not cheap, although I’m not saying they’re expensive.”

While US stock markets dipped slightly, they fared better than their European counterparts. Some fund managers were nervous, however.

Nick Melhuish, head of global equities and European asset manager Amundi, said his “main concern” would be that the US and North Korean tensions act as a “negative catalyst” for US equities — especially if taken together with the probe into Mr Trump’s ties with Russia.

Others wondered whether the fiery exchange between the White House and Pyongyang was an intentional distraction from the Russia probe.

“We wonder whether this is a deliberate distraction from the ongoing investigation into Trump’s campaign and Russia,” said Graham Bishop, investment director at Heartwood Investment Management.

Mr Seager-Scott said the most important thing for retail investors was to keep their portfolio diversified, and not to place aggressive bets.