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North Korea tensions ignite buying of haven assets

The Swiss franc led a rally among haven assets across global markets on Wednesday as investors retreated from equities in the wake of escalating rhetoric between North Korea and the US.

A clash of words between the White House and Pyongyang overnight pressured the global equity bull run with European markets down more than 1 per cent in morning activity after Japan and Korea closed lower.

The Swiss franc, often favoured in times of stress for its perceived stability, made its most notable gains against the euro, strengthening by as much as 1.5 per cent. Against the dollar the franc rose as much as 1.4 per cent.

Gold was heading back towards a two-month peak set last week, while investors also sought the Japanese yen and top tier government bonds.

In Asia trading, South Korea’s main stock index fell 1 per cent and its currency 0.8 per cent. Tokyo’s Topix closed 1.1 per cent lower, having dropped as much as 1.5 per cent.

Andrew Milligan, head of global strategy at Standard Life Investments, said: “This war of words is a reminder that the markets face a number of geopolitical risks, and that while investors usually do not pay much attention, periodically we see the need to price in a political risk premium.

“No one would say these market moves are small, but they are measured, including the falls in Seoul for the Kospi and the won.”

Investors were awaiting the opening of Wall Street, with equity futures suggesting a modest decline for US equity benchmarks that had declined in the final hour of trading on Tuesday after US president Donald Trump warned North Korea of “fire and fury”.

Chris Turner, head of FX strategy at ING, said: “Unless the situation escalates, we don’t look for a material and long lasting contagion effect of the overnight trading pattern, expecting markets to look through the geopolitical tensions.”

The CBOE’s Vix, also known as Wall Street’s fear gauge, rose to its highest level in a month, albeit from notable lows, to a reading near 12, still well below its average of 20. The Euro Stoxx 50 volatility index jumped from Tuesday’s close of 12.78 to 14.5 on Wednesday.

The yield on 10-year US Treasuries was down 2 basis points at 2.24 per cent, while German Bund yields dropped 4bp at 0.43 per cent to the lowest since the end of June. The UK benchmark also dipped 4bp to 1.11 per cent.