Here's what market observers think of the Trump-Kim summit conclusion

THE on-off-on North Korea-United States summit finally took place on Tuesday in Singapore.

Both US President Donald Trump and North Korean leader Kim Jong Un pledged to work toward complete denuclearisation of the Korean peninsula and are prepared to “write a new chapter” between the two countries.

Among other things, Mr Trump and Mr Kim discussed the lifting of sanctions in North Korea, though the sanctions will remain till complete denuclearisation takes place. Mr Trump added that this could take a long time.

Here are what some market observers think of the conclusion:

1. UOB Global Economics and Markets Research

What was virtually impossible to imagine a year ago became a reality on June 12 after US President Donald Trump and North Korean Supreme Leader Kim Jong Un concluded the first historic summit between the leaders of the two countries in Singapore. 

The meeting outcome is generally positive on the back of apprehension over what could be achieved and possibliity of mis-matched expectations given that Trump had previously threatened to abandon the meeting if his expectations were not met.

The success of the historical summit is major step towards the removal of nuclear threat in the Korean Peninsula, though only further negotiations could be able to provide more clarity on the process towards full denuclearisation.

This could be a lengthy journey but the positive start will provide more confidence.

For North Korea, what matters is the sanctions relief that they will receive for complying and details will continue to be ironed out at further meetings.

2. Mark Mobius, founding partner, Mobius Capital Partners

The summit is a hugely positive development for Asia and the rest of the world.

We have been eagerly anticipating peace on the Korean peninsula for years, a topic that Trump and Kim have addressed in the joint statement.

While there is no promise of reunification coming out of the summit, this event could perhaps serve as the single most significant economic event transforming Asia and providing immense opportunities for citizens and investors alike.

3. Jefferies Equity Strategy

The much-awaited summit between US President Trump and North Korean leader Kim Jong-un ended cordially.

After basking in the sunshine from the improving relations with the North, South Korean President Moon Jae In will need to turn his attention to the domestic economy where the disinflation boom is evaporating fast.

The talks appear not to have progressed much further than pleasant platitudes and introductory remarks but it left with both parties feeling that there had been some success getting the whole process started.

The much anticipated ‘denuclearisation plan’ was always going to be a much more difficult starting point for negotiations.

In this respect, we think future talks are likely to follow the path of the Reagan-Gorbachev’s summits in the 1980s as both sides tried diplomatically to end the nuclear arms race.

It took over two years and many rounds of meetings to get a treaty signed.

4. Alison Evans, deputy head of Asia Pacific Country Risk at IHS Markit

The joint statement signed by US President Donald Trump and North Korean Supreme Leader Kim Jong Un had few details or actionable items. 

By committing to work “towards” the denuclearisation of the Korean Peninsula, Kim has conceded no more than he did in the April 27 Panmunjom Declaration signed with South Korean President Moon Jae In.

Rather, the statement implicitly recognises North Korea as a de facto nuclear weapons state. This lends North Korea, and specifically Kim, legitimacy at home and abroad.

In a press briefing, Trump said that “sanctions will remain in place.” Notably, however, our analysis indicates that sanctions have not yet had a substantial impact on North Korea’s economy, importantly in the capital Pyongyang.

For North Korea “denuclearisation” means multilateral rather than unilateral disarmament. 

Although Trump announced that North Korea was “already destroying” a missile engine testing site, the location and nature of the site – and more importantly its impact on North Korean weapons capabilities – remains unclear.

In this way, the statement is similar to the joint statement signed by the US and North Korea on June 11, 1993, which also agreed to the principle of “peace and security in a nuclear-free Korean Peninsula, including impartial application of fullscope safeguards,” but resulted in few substantive concessions by North Korea.

5. Ma Tieying, Economist, DBS Group Research

If real peace can be established on the Korean peninsula, it will help to improve South Korea’s sovereign rating profile, reduce the geopolitical risk premium embedded in South Korean won assets, and boost foreign capital inflows into South Korea’s equity and bond markets.

Rating agencies are not in a hurry to upgrade South Korea’s sovereign credit ratings. They have upgraded the county several times after 2008 global financial crisis on an improvement in external debt coverage and enhanced prudence in fiscal policy management.

S&P currently rates South Korea at AA, on par with New Zealand and one notch above Taiwan. Moody’s also ranks South Korea at Aa2, on par with Hong Kong, and one notch above Taiwan.

Massive capital inflows are unlikely to materialize in the near term due to an unconducive global environment – rising US interest rates, a strengthening US dollar, spreading trade protectionism and high oil prices.

In the longer-term, if real peace can be established on the Korean peninsula, it will boost the prospect for North Korea to open its economy and integrate into the international community.

There is great potential for North Korea to upgrade infrastructures/manufacturing facilities, promote external trade, and attract foreign investment.

stephluo@sph.com.sg

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