11 August 2017

North Korea: A problem not of Trump’s making.

Missile development program slowly shifts the political balance

North Korea’s recent successful test of a missile capable of reaching much of the US mainland is clearly a concern but it is not because such an attack is imminent or likely. The history of military rocket development suggests that it will still be some years before North Korea could be assured of a successful, let alone multiple, strike on the US or even Guam. However, in the event of any attack, the overwhelming superiority of US forces would undoubtedly ensure the destruction of North Korea. Therefore in many respects Trump’s most aggressive comments this week were a statement of the obvious and investors should accordingly not over-react, even as volatility has risen during thin trading over the holiday season.

RSS - Strategic Insight
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*Multiple Sectors
Illumination: Equity strategy and market outlook

In this month’s strategy piece, Alastair George highlights that the standout market event during February was the discontinuity in equity market volatility. In his view, renormalisation of monetary policy will over time have a much broader impact on asset prices. In particular, this volatility episode adds to the weight of evidence that market risk premia will also revert back to more normal levels as interest rates rise. There has, however, been no evidence in recent weeks that economic fundamentals are weakening. While recognising the growth dynamic is strong for the moment, he continues to believe equity portfolios should now be tilted towards sectors that have offered a degree of resilience. Bond yields may have risen substantially since he highlighted anomalously low yields in December, but on balance the risks still appear to the upside.

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