Business / Financial Markets

Asian stocks drop while yen and franc gain after North Korea missile launch

Amid tensions, investors flock to safe havens

Bloomberg, Reuters

Asian stocks fell, and the yen and Swiss franc gained Tuesday as investors flocked to safe havens after North Korea fired a ballistic missile over Japan, fanning simmering tensions.

Gold extended a rally above $1,300 an ounce and oil rebounded as investors weighed the damage from Tropical Storm Harvey.

Equities declined from Seoul to Sydney, though bounced back from the day’s lows, and volatility jumped.

The Nikkei 225 stock average was down 0.9 percent to a four-month low at one point, then pared losses to close 0.45 percent off. South Korea’s Kospi shed as much as 1.6 percent, helping to drag down the MSCI’s broadest index of Asia-Pacific shares outside Japan by 0.6 percent.

“All sectors are tumbling, which clearly shows that North Korea risks are the reasons behind it,” said Cho Byung-hyun, a stock analyst at Yuanta Securities in Seoul.

Japan’s currency gained versus all major developed peers, while the Korean won and Australian dollar dropped in a classic risk-off move. Japan said the missile landed off the eastern coast of Hokkaido in the Pacific Ocean.

The yen briefly rose 0.8 percent to ¥108.33 to the dollar, its highest since April. The yen tends to benefit during times of geopolitical or financial stress as Japan is the world’s biggest creditor nation and there is an assumption that Japanese investors will repatriate funds should a crisis materialize.

Gasoline added to a rally as the storm that has battered the U.S. state of Texas was picking up strength again after inundating refineries along its coast.

“Some observers had thought U.S. and North Korea were pursuing discussions behind closed doors, but it turns out North Korea continues to pursue missile development,” said Chihiro Ohta, a Tokyo-based senior strategist at SMBC Nikko Securities. “The risk-off stance is likely to continue even if the U.S. responds calmly.”

Tuesday’s missile firing thrusts the confrontation between the U.S. and North Korea back to the fore after the hermit kingdom had been praised by Secretary of State Rex Tillerson last week for its “restraint.”

Tillerson said that North Korea hadn’t carried out “provocative acts” since the U.N. Security Council imposed new sanctions earlier this month, and that Pyongyang’s temperance might lead to negotiations “in the near future.” Kim Jong Un last tested a missile July 28.

North Korea had threatened to fire a missile over Japan toward the U.S. territory of Guam, prompting Trump to browbeat the country with his “fire and fury” comments that roiled global markets.

Prime Minister Shinzo Abe said a missile flying over Japanese territory was “an unprecedented, grave and serious threat.”

Japan has asked the Security Council to hold an emergency meeting and Abe said that he agreed with Trump to increase pressure on North Korea in a 40-minute phone call Tuesday morning.

“We are holding high cash levels due to a number of factors including global inflation, growth expectations coming down, bond yields in the U.S. rolling over and geopolitical tensions,” said James Soutter, a fund manager at K2 Asset Management in Melbourne.

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