We have entered a new stage of the Korean crisis. We are now on the verge of a real war within the world community led by the United States and the DPRK.
But how did it come to this? The Korean Foreign Minister on Monday mentioned two magic words: Declaration of War. And I know what you’re thinking right now …
The tweet of the President of the United States cannot be seriously taken as a declaration of war, however, the part in which it was said that “North Korea does not have much time left to exist” was taken by Kim Jong-un without a smile.
What are the consequences we now have to face? No idea, to be honest. And because of this state of affairs, there are speculations, rumors, uncertainties, and, of course, the situation provides tremendous support to safe havens. Gold soared in price on Monday after a North Korean diplomat announced that they could start shooting down American bombers.
And so, investors began to think about ways to reduce risks. How do markets react to North Korea’s threats to blow up the US? Why is that? Understanding how risk reduction actually works can make you a smart investor who makes a profit, while everyone else does not.
Higher risk levels mean higher returns. The equation is very simple. The more you risk, the higher the profit can be. It goes without saying that the chance of losing capital increases, but this is precisely how it is intended.
What does “risk avoidance” mean?
The term “risk avoidance” can be understood as a reluctance to get into situations that may have undesirable consequences and a preference for confidence in something rather than uncertainty.
Most private investors alike will react to the threat of war, worrying about themselves, their families and their savings. Knowing this, we can assume an increase in demand for safe-haven assets: gold, Japanese yen, Swiss franc, and sometimes even euro.
However, these are not the only assets that can grow during periods of uncertainty. If we talk about a hurricane, think how much money will be needed to restore the affected areas. Think of the construction companies and technologies involved in the process.
In the case of North Korea, you should pay attention to military supplies, steel mills, food supplies. See the connection? There are things that will be on the rise, even if the world seems to fall apart. They only need to search.