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Global Affairs

North Korean Tensions: Impact on Financial Markets and Safe Haven Investments

 3 min read / 

North Korea’s sixth nuclear test and other geopolitical factors, such as Hurricane Harvey, have positively impacted safe haven investments as investors turn to low-risk investments. Safe haven investments include gold which reached a nine and a half month high, rising by over 1% in just one day, and yesterday the Japanese yen was up 7.6% for 2017. Conversely, equity markets were hit by tension as European and Asian stocks declined in early September with FTSE 100 down by 0.36% and the Nikkei nearly losing 1%. Indeed, the tensions are creating an investment environment which is unstable due to uncertainty about whether the conflict will be resolved or escalated.

Possible Shift in Safe-Haven Investments?

Gold is regarded as a safe-haven investment due to its ability to be unaffected by government policy changes, such as interest rates, as gold retains its inherent value in times of market insecurity. Furthermore, gold is an asset which has a low correlation with movements in other stocks prices, as shown below by figures close to 0. This means that gold can be used to hedge against unexpected market movements and also inflation.

Source: Stansbery Research

As pessimism rises, so too does demand for gold, increasing its price. This occurred following the announcement of North Korea’s sixth nuclear test, as detailed earlier.

The Japanese yen also appreciated. This is interesting, given the fact that Japan is seen by many to be a target by North Korean nuclear bombs. However, while tensions between the countries continue without any direct action, many believe the yen will maintain its strong position in foreign exchange markets. If there was to be a nuclear attack, the impact is unclear as some- including the head of Japan’s markets research at JP Morgan- believe that  “the more damage to Japan, the greater appreciation of the yen”, while the chief market economist at Nomura deems there will be a significant depreciation of the yen due to an outflow of funds by investors. Some also believe that an attack on Japan could lead to a worldwide financial crisis.

Could investors turn away from the Japanese yen if Japan was attacked, and look to other safe-haven assets such as government bonds or other currencies? For example, yields of the German government bond, Bund, reached four-month lows due to significant price rises, while the Swiss franc rose nearly 1% against the US dollar. The ambiguity surrounding the impact of North Korea’s next actions regarding Japan could present an opportunity for speculators to search for investments elsewhere.

Conclusion

Other geopolitical factors such as Hurricane Harvey have caused Brent crude prices to soar to a three month high, due to continuous refinery outages on the US Gulf Coast leading to a reduced output of 2.3 million barrels per day. With another major hurricane impending, there could be even further oil price increases. However, the hurricane will not destabilise the oil price in the long-term.

To conclude, geopolitical factors are the predominant factors causing movements in stocks, bonds, commodities and foreign exchange but as long as the tensions with North Korea are not escalated any further, it is probable that global asset prices will be stable.

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Companies

Financing for Green Sustainable Development

 3 min read / 

Green Sustainable Development

Green sustainable development has been on multiple discussions channels. Talks, seminars, workshops, you name it. However, financing it has not been thoroughly discussed. How do we finance sustainable green development? Is it profitable for companies who do so? Is the rate of return high enough to cover the cost of investing in green technologies?

No doubt, green sustainable technology is an expensive technology with no clear ROI. Venturing into green technologies may be a blind-man guided only by a voice in his head. Yes, green sustainable technology yields a significant Marginal Social Benefit (MSB). But often, MSB is non-quantifiable.

Leading this social-technology movement, Jeffrey Sachs, with the support of foundations such as the Jeffrey Cheah Institute, established the Sustainable Development Goals (SDG) centre in the backdrop of academics – Sunway University.

The aim is to directly address the issues for SDGs and to ensure the goal set in the Paris Climate Agreement is able to be achieved successfully.

Now, as mentioned, private firms are both afraid and pessimistic about green sustainable development. Many do not see the outcome of this initiative and are not concerned about the environment. The technology is costly, and some firms are even struggling to break-even at their current costs. Lack of momentum from firms involved in similar industries and lack of financial support has made venturing into green technology unattractive.

On 14th of January 2018, pioneers and advocates from across the globe were invited to join a workshop at Sunway University. The idea was to bring together a group of academics, from the Asian Development Bank Institute to representatives from New Zealand and Austria, to discuss how to finance green sustainable developments. It attracted a number of firms involved or who wanted to be involved in this movement.

Financing models such as the SIB model and the Yozma model were introduced by Dr Hee Jin Noh. Papers on the theoretical relationships between a firm, a bank, and households were presented by Dr Maria Teresa Punzi. And the outcome of these series of workshops will be a book, which aims to provide a better insight and guideline for green financing, written by Dr Hee.

Also presented was a case study, comparing different countries. Associate Professor Ivan Diaz-Rainey had made comparisons on some successful countries, looking at European countries versus New Zealand and Australia. In the case study, countries were compared, and recommendations were made on how to make green financing successful. Though the definition and KPIs of a successful green development country are still vague, countries from Europe are exemplary on the ‘theory to practice’ phase.

While there is a significant increase in awareness and wanting to be involved by private firms, it needs to be supported by the government more. Regulators need to provide sufficient information to assist private firms venturing into green technology or green development. A healthy government support will increase the chance of a firm venturing into green development being successful. And these are the baby steps needed in order for transformation at city-scale or nationwide-scale.

Keep reading |  3 min read

Global Affairs

Smart Cities Take Off

Smart cities

Big tech deals took off in 2017 as big tech firms strived to make smart cities a reality. 

Editor’s Remarks: In 2017, 35 agreements were reached between various cities around the world and big tech companies – a huge increase from the eight that were agreed in 2016. Alphabet has launched a project to develop a miniature smart city in 12 acres of land it purchased in Toronto. Meanwhile, Alibaba is leveraging digital infrastructure in Macau, where its smart transport systems will hopefully improve efficiency for the municipal government. Saudi Arabia has also announced a plan to build a new city, to be named NEOM, which will rely fully on renewable energy as well as self-driving vehicles and drones.

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Europe

Bayeux Tapestry on Loan

Bayeux Tapestry UK

Emmanuel Macron has offered to loan the famous tapestry to the UK in an effort to improve relations.

Editor’s Remarks: The offer is expected to be announced this Thursday, when Macron will meet UK officials at the Anglo-French summit at Sandhurst. The Bayeux Tapestry was commission by William the Conquerer’s brother to celebrate his 1066 conquest of England and depicts the Norman king defeating the Anglo-Saxon ruler King Harold. Although it was made in England, the piece – which measures about 35 square metres – has remained in France for the past 940 years. At the upcoming summit, Macron is also expected to petition the UK to join his combined European military initiative – a move many expect Britain’s new defence secretary Gavin Williamson to push back on.

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