This information has been prepared by IG, a trading name of IG Australia Pty Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
What have we learnt from US-NK Singapore summit?
US President Donald Trump met with North Korean leader Kim Jong Un at a summit on the island of Sentosa in Singapore. The unprecedented meeting culminated in the signing of a joint statement by both leaders and a handshake symbolising a key step towards easing diplomatic tensions. The statement said, ‘President Trump committed to provide security guarantees to the DPRK, and Chairman Kim Jong-un reaffirmed his firm and unwavering commitment to complete denuclearisation of the Korean Peninsula.’
The goal of the United States is to achieve complete, verifiable and irreversible denuclearization (CVID). Some critics argued that the omission of the words ‘verifiable’ and ‘irreversible’ meant that the agreement was light on detail and enforceability. John Raines, head of political risk, economics and country risk at IHS Markit said the deal was positive in terms of international war risks but it is a ‘symbolic’ deal which is ‘a little bit light’ on specifics.
US ending war games
As part of the deal, the US agreed to end its joint military exercises with South Korea referred to as war games in a win for North Korea. Trump said the war games are ‘tremendously expensive.
The amount of money we spend on that is incredible.’ According to Raines this is a significant concession and sends a message to North Korea that the US is willing to meet half way on security guarantees.
North Korea’s closure of a missile test site
Trump said that North Korea is ‘destroying a major missile engine testing site,’ which would represent a win for America. However, the site was unnamed, drawing criticism from some experts.
Raines said that he has not seen ‘intelligence to suggest that they have completely disarmed this facility.’
War risks
Not long ago, the world was seriously concerned about the potential threat of nuclear warfare. Sentiment has clearly shifted with Trump describing the North Korean leader Kim Jong Un as a ‘talented man’ and hailing the ‘special bond’ between the two nations.
Raines says that the dialogue has helped to diminish war risks. However, in the long term war risks could increase again if diplomacy fails.
.jpg)
