Commandos march across the Kim Il Sung square during a military parade in Pyongyang, North Korea. War with the country could have devastating consequences for investors. Wong Maye-E / AP
Commandos march across the Kim Il Sung square during a military parade in Pyongyang, North Korea. War with the country could have devastating consequences for investors. Wong Maye-E / AP
Commandos march across the Kim Il Sung square during a military parade in Pyongyang, North Korea. War with the country could have devastating consequences for investors. Wong Maye-E / AP
Commandos march across the Kim Il Sung square during a military parade in Pyongyang, North Korea. War with the country could have devastating consequences for investors. Wong Maye-E / AP

What would a war in North Korea mean for Middle East investors?


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With the 2003 Second Gulf War so long ago, many investors have no experience of what a major war means for their portfolio. The civil wars in Iraq, Syria and Yemen have been comparative sideshows in terms of their economic impact outside those countries.

Of course nobody but a madman would actually want any sort of war, with its horrific consequences for those fighting and living under it. But as history shows, that has never stopped them happening in the past.

I remember being at a press conference in Dubai just before the start of the Second Gulf War in March 2003. Somebody came running up to me with spreadsheets and graphs in his hands to explain that now was the point of maximum uncertainty - just before the shooting started - and that this was the very lowest point to buy global stocks.

At the time I was a bit shocked that anyone could take such a cool view of an approaching disaster. Yet this particular contrarian investor had certainly got his timing right.

Right now in North Korea the drums of war are beating again. But nobody really believes anything will happen because it is almost 70 years since the First Korean War, and in all that time belligerent talk and weapons testing has not resulted in war.

However, with US President Donald Trump hinting that his current consultations with US military could be ‘the calm before the storm’ and ‘nothing else will works’ - that could change quite suddenly.

If war was to commence, it would be a dramatic and extremely violent affair. It would also upset the current complacency in extremely overvalued US and other global stock markets, with seriously negative consequences.

After the very quick and at first successful invasion of Iraq by the US and its allies the stock market went up. But it had reached rock bottom first. History could repeat itself again.

For what financial markets hate more than anything is uncertainty, and nothing is more uncertain than a war. It could turn out to be a pushover like Iraq - which later morphed into a disaster - or nuclear bombs might land on South Korea causing immense loss of life.

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Read more from Peter Cooper:

The best contrarian investment opportunities this Autumn

Will gold shine brightly again this autumn as bitcoin crashes?

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Pricing of worst possible scenarios into stock markets is always a painful experience for those fully invested at the time, and the subsequent recovery can take many years, particularly when stock prices have reached record-breaking levels as they have today.

Conversely wars tend be very positive for commodity prices and interest rates.

Financial markets are then thinking further ahead and asking well what if this proves to be a longer commitment than originally advertised. The First World War was supposed to be over by Christmas but took four years to reach an inconclusive conclusion.

Therefore, markets assume that commodities ought to cost more because military equipment lost will need to be replaced. Also there is an assumption that inflation will follow the necessary printing of money to pay for the conflict.

So the Middle East sat on the world’s largest energy reserves would be a net beneficiary. Also on some calculations, more than one-third of the world’s energy supply flows would be disrupted by a conflict in Asia, and that alone would mean far higher oil and gas prices.

Opportunistic investors might care to buy up oil shares, for example, in the stock market mayhem that would result from a surprise conflict in North Korea or the build up to one.

One of my contrarian investment friends was thinking about South Korean shares as a clear buy in such a tragedy a couple of months back. Professional investors already have this situation on their radar but, like everybody else, have been loathed to jump the gun.

Classic safe havens like precious metals also move up and down in price on every news item about North Korea. Gold and silver would benefit due to fears about future inflation from money printing as well as a flight from riskier assets like overvalued stock markets and bonds.

If a North Korean war was to get completely out of hand, then gold could hit record highs as central banks would then have so many problems to deal with that fixing the gold price would be put on the backburner as it was in 2009 to 2011.

Rising interest rates from falling bond markets would put a big squeeze on all asset prices related to cheap money. Holding cash would be a better place to be, at least until the initial bear market was completed.

Real estate is a more difficult asset to call, however. It also has a safe haven appeal and in a time of chaos in stock markets, real estate can benefit as a less risky alternative.

A bad crash in the Dubai Financial Market in the mid-2000s did nothing to derail the then property boom, for instance, and in fact powered it to new highs just in time for the Global Financial Crash of 2008.

So while war is the worst of manmade tragedies it can be a friend to the opportunistic investor if you move correctly when it happens.

Sir John Templeton, one of the world’s most famous investors, made his first fortune by borrowing big to invest in undervalued US companies in the early days of the Second World War when the effect the war was to have on profits was not generally appreciated.

Unfortunately, today US stocks are very overvalued so it is impossible to make the same argument, and selling short is a more obvious course of action.

Buying precious metals now while prices are cheap is a far better analogy. Right now people prefer to gamble on bitcoin going up and Facebook shares rather than buy gold, and the contrarian in me reckons the consensus is wrong as usual.

Peter Cooper has been writing about finance in the Gulf for over 20 years

The National's picks

4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young

Virtuzone GCC Sixes

Date and venue Friday and Saturday, ICC Academy, Dubai Sports City

Time Matches start at 9am

Groups

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Dirham Stretcher tips for having a baby in the UAE

Selma Abdelhamid, the group's moderator, offers her guide to guide the cost of having a young family:

• Buy second hand stuff

 They grow so fast. Don't get a second hand car seat though, unless you 100 per cent know it's not expired and hasn't been in an accident.

• Get a health card and vaccinate your child for free at government health centres

 Ms Ma says she discovered this after spending thousands on vaccinations at private clinics.

• Join mum and baby coffee mornings provided by clinics, babysitting companies or nurseries.

Before joining baby classes ask for a free trial session. This way you will know if it's for you or not. You'll be surprised how great some classes are and how bad others are.

• Once baby is ready for solids, cook at home

Take the food with you in reusable pouches or jars. You'll save a fortune and you'll know exactly what you're feeding your child.

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Neil Thomson – THE BIO

Family: I am happily married to my wife Liz and we have two children together.

Favourite music: Rock music. I started at a young age due to my father’s influence. He played in an Indian rock band The Flintstones who were once asked by Apple Records to fly over to England to perform there.

Favourite book: I constantly find myself reading The Bible.

Favourite film: The Greatest Showman.

Favourite holiday destination: I love visiting Melbourne as I have family there and it’s a wonderful place. New York at Christmas is also magical.

Favourite food: I went to boarding school so I like any cuisine really.

Tips to stay safe during hot weather
  • Stay hydrated: Drink plenty of fluids, especially water. Avoid alcohol and caffeine, which can increase dehydration.
  • Seek cool environments: Use air conditioning, fans, or visit community spaces with climate control.
  • Limit outdoor activities: Avoid strenuous activity during peak heat. If outside, seek shade and wear a wide-brimmed hat.
  • Dress appropriately: Wear lightweight, loose and light-coloured clothing to facilitate heat loss.
  • Check on vulnerable people: Regularly check in on elderly neighbours, young children and those with health conditions.
  • Home adaptations: Use blinds or curtains to block sunlight, avoid using ovens or stoves, and ventilate living spaces during cooler hours.
  • Recognise heat illness: Learn the signs of heat exhaustion and heat stroke (dizziness, confusion, rapid pulse, nausea), and seek medical attention if symptoms occur.
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