What to expect from the U.S./North Korea Summit

by: , Strategic Asset Allocation & Solutions Group, New York Life Investment Management

The world’s eyes will be on Singapore June 12 for the on-again/off-again/on-again summit between the U.S. and North Korea. What can be expected to occur during the meeting? And, what are the potential repercussions for the financial markets?

To be sure, President Trump and Kim Jong-un are two leaders not known for their predictability. As such, foreseeing the outcome of the summit and its impact of the markets are likely a lesson in futility. But, one thing is for certain—the nexus between geopolitical events and markets is very tenuous.

What constitutes success?

Expectations going into the summit have been reasonably well managed, with hopes for a positive outcome, while, at the same time, pragmatic expectations. It has been noted that communications between the two nations—rather than public rancor—is preferable. But, having a summit that fails to deliver tangible accomplishments would likely result in a resumption of verbal fireworks and acrimony. One potential positive outcome would be an agreement between the two sides for ongoing negotiations and a continued suspension of North Korea’s missile tests. This would likely be viewed favorably by the markets.

Spin, wash, repeat

As many pundits have observed, while face-to-face talks between President Trump and Kim Jong-un were an expected development, it is important to remember how previous negotiations with North Korea have played out. For more than 20 years, the country has been heavy on promises and light on actions. Without a detailed and strictly-enforced verification process, it will probably be only a matter of time before it’s discovered that North Korea didn’t live up to its promises to dismantle its weapons program.

And, should that occur, North Korea might again make threats, get some money and supplies for promising some form of “dismantling”, and then the whole cycle continues again. For as long as major powers reward rogue states with ballistic missile programs with “summits” and let them bargain so-called ‘dismantling steps’ for financial gains, it’s hard not to see this not happening again. That said, having no lines of communication and ongoing threats of annihilation between nations isn’t palatable or desirable for the financial markets, let alone the world.

Additional hot spots

Of course, the summit isn’t the only geopolitical event that could impact investor sentiment in the coming months. President Trump’s decision to abandon the nuclear deal with Iran has triggered increased uncertainties in the Middle East. Threats of a global trade war persist. Italy’s recent election reignited concerns over the future of the eurozone. And, the latest round of Brexit negotiations are about to move to the front burner. Any or all of these could rile the financial markets and result in increased volatility. Against this backdrop, investors would be well served to not overreact to the headlines and remain focused on their long-term goals. Working with a trusted financial advisor can also be beneficial, should an investor’s financial goals or risk tolerance change, as it may warrant an adjustment to their portfolio.

Opinions expressed are current opinions as of the date appearing in this material only. The information and opinions contained herein are for general information use only. New York Life Investments does not guarantee their accuracy or completeness, nor does New York Life Investments assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. There can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Past performance is no guarantee of future results.

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SAS Group

Strategic Asset Allocation & Solutions Group, New York Life Investment Management

NYLIM’s Strategic Asset Allocation & Solutions (SAS) Group invests tactically across the full span of global capital markets, designing comprehensive solutions for a variety of client needs. Managed assets include MainStay Asset Allocation and Retirement Funds, mandates for third parties, and a customized strategy for the New York Life General Account.

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