What Experts say: Trump and Kim pledge to work towards denuclearization

SINGAPORE  – U.S. President Donald Trump and North Korean leader Kim Jong Un pledged on Tuesday to work toward complete denuclearization of the Korean peninsula and signed a ‘comprehensive’ document at a landmark summit in Singapore. In turn, Washington committed to providing security guarantees for the Asian nation.

Reaction in Markets

The U.S. dollar gave up some early gains, though it was still up against the safe-haven yen while shares were mildly positive.

MSCI’s index of Asia-Pacific shares outside Japan climbed 0.2 percent and Japan’s Nikkei gained 0.3 percent. South Korea’s KOSPI index was flat.

European stocks advanced with the pan-European STOXX 600 up 0.2 percent, while futures pointed to a positive start Wall Street, with E-Minis for the S&P 500 up 0.1 percent.

Following are reactions to the summit and the agreement the two leaders signed:

LIANG YABIN, SENIOR RESEARCHER, PANGOAL, CHINESE PUBLIC POLICY THINK TANK, BEIJING

“This joint declaration is in line with the three principles of ‘no chaos, no war, and peaceful settlement’ proposed by the Chinese government. The DPRK nuclear issue cannot, of course, be resolved overnight, but we have seen more peace and hope in today’s DPRK-US talks.”

ANTHONY RUGGIERO, SENIOR FELLOW, FOUNDATION FOR DEFENSE OF DEMOCRACIES THINK TANK, WASHINGTON

Says agreement looked “similar to the 2005 Joint Statement where the sides committed to the denuclearization of the Korean Peninsula and the U.S. agreed not to attack or invade North Korea. Unfortunately, we do not know if Kim has made a strategic decision to denuclearize and it is unclear if further negotiations will lead to the end goal of denuclearization. This looks like a restatement of where we left negotiations more than 10 years ago and not a major step forward.

“The North Koreans have made this commitment many times before and each time they have broken those promises. The question now is whether Pompeo and his North Korean counterpart can move quickly toward a substantive and irreversible action toward denuclearization.”

TRINH NGUYEN, SENIOR EMERGING ASIA ECONOMIST, NATIXIS, HONG KONG

“Although it’s meaningful, people are watching for concrete steps. North Korea will have to prove that it will completely denuclearize and to do so it will have to give up the efforts that it has taken to get here. It has to match words with actions and only time can give you that concrete answer.

“We don’t expect any significant (market) movement from this. We never had this expectation because we never thought that investment in South Korea is driven by the escalation or de-escalation. The drivers are monetary policies, fiscal policies, what’s happening with structural issues, demographics, what’s happening with trade tensions.”

“And ultimately investors are looking beyond North Korea. They are looking for the status quo of U.S. commitment in the region. And for that, we will have to wait and see.”

KOREA CHAMBER OF COMMERCE AND INDUSTRY, SEOUL (Translated statement)

“We deem today’s summit between the United States and North Korea as a historic summit that opened a new era of peace and co-existence.

“We hope today’s agreement will be carried out without fail to establish permanent peace on the Korean peninsula.

“South Korea’s industrial sector will actively cooperate by finding its best role to better inter-Korean relations and it will fully prepare for a new age of economic cooperation between North and South Korea.”

YASUHIDE YAJIMA, CHIEF ECONOMIST, NLI RESEARCH INSTITUTE IN TOKYO

“This is only the beginning of what would be a very long and grinding process, so uncertainty will persist. Markets probably don’t know how to react given the ambiguous nature of the agreement. Each event will cause a big market reaction. We’ll probably see a repeat of this.

“So they’ve agreed to verify denuclearization but how would you do that? To me, that sounds almost impossible. North Korea has a history of disappointing”

STEWART JACKSON, POLITICS LECTURER, UNIVERSITY OF SYDNEY, SYDNEY

“Until we see concrete movement on it, it doesn’t mean a great deal. That said, we have to keep in mind that Nixon visiting China in the early 70s didn’t seem to do enormous amounts of things immediately, but it represented far more. That Trump’s been able to do it might annoy some people, but it doesn’t really matter who does it if it’s possible to at least reduce tensions on the Korean peninsula.

“We haven’t seen the details, what does denuclearization mean to either of them. Do they actually understand what people think it means? Is it getting rid of everything or is it: ‘Oh well, we won’t go any further’?

“There’s an awful lot of unknowns, if you like, attached to this. It’s a really useful first step, but let’s see what happens next…given President Trump’s repudiation of other forms of agreement, for instance, the Iran deal, which was again supposed to bring at least a slowing of Iran’s nuclear program, it seems kind of odd that here he is trumpeting this. Is he trying to achieve things that his predecessor didn’t?

“I’d just be wary of drawing too many conclusions from it, but at the end of the day, the simple fact that they sat down and had some sort of discussion is a good thing. Because without the dialogue, well, there’s nothing.”

KEVIN LAI, CHIEF ECONOMIST ASIA EX-JAPAN, DAIWA CAPITAL MARKETS, HONG KONG

“It looks like the summit has gone well, at least … Trump was quite happy with the overall result. I would expect a few more meetings between both sides to work out the details on how to achieve verifiable denuclearization.

“That will pave the way for full normalization of relations. The conditions are positive. Then we can even talk about economic development for the North.

“We are no longer very concerned about the possibility of a military conflict. That probability has gone down a lot and potentially we may be talking about the possibility of economic advancement in the North and even unification.

“A united Korea … could be an important economic force in the future if a deal can be struck and if that deal works.

“I don’t expect a lot in terms of market reaction. The market didn’t really react to heightened geopolitical risk last year. It doesn’t seem to understand how to react because there are still many different possibilities, even now. The market is not really sure how to react until it sees something more concrete.”

KOTA HIRAYAMA, SENIOR EMERGING MARKETS ECONOMIST, SMBC NIKKO SECURITIES, TOKYO

“While the impact on the broader emerging markets is likely to be limited, today’s outcome is positive for regional markets like those in China, South Korea, and Taiwan.

“Now that Trump and Kim appear to have discussed denuclearization, the next focal point is whether and when negotiations will continue. There was a significant amount of diplomatic symbolism today, but assessing the exact significance for the financial markets is rather difficult at this point.”

WANG PENG, ASSOCIATE RESEARCH FELLOW AT CHONGYANG INSTITUTE FOR FINANCIAL STUDIES, RENMIN UNIVERSITY OF CHINA

“In the future, North Korea will cautiously maintain a delicate balance between China and the United States but North Korea will still rely on China for major issues. At the same time, North Korea will use the strength of the United States to offset China’s impact on North Korea. Judging from the current state of China-U.S.-North Korea relations, in the foreseeable future, China cannot be marginalized. Instead, it will play a more proactive, active and positive role in the affairs of the peninsula.”

SUE TRINH, HEAD OF ASIA FX STRATEGY, RBC CAPITAL MARKETS, HONG KONG

“Both sides stand far, far apart on what denuclearization means. To the U.S., it means North Korea must deliver complete, verifiable and irreversible denuclearization. To Kim, it means North Korea suspends nuclear and missile tests in exchange for major economic concessions and the U.S. stepping back as a torchbearer for the Asian region (basically dismantling its alliance with South Korea and ultimately the region as a whole). Kim has never announced the intention of abandoning his existing nuclear arsenal, which he calls a “treasured sword”.

“Per previous peace deals, the main issue will be the pace of implementation, which includes agreement on a verification protocol. South Korean President Moon suggested it could be the start of a process lasting up to two years or longer.

“So let’s get back to what really matters for markets for the time being – next up, US CPI, voting on the EU Withdrawal Bill and the FOMC and ECB meetings.”

RAY ATTRILL, HEAD OF FX STRATEGY, NATIONAL AUSTRALIA BANK, SYDNEY

“It was a very stage-managed event and there was nothing really off-script, so that doesn’t give markets much to play with.

“You look at the event risks of this week – in terms of where we are on protectionism after the trainwreck that G7 was – I think that is going to be more significant than this summit.

“You wouldn’t want to go long U.S. dollar ahead of the Fed meeting, protectionism risk, and the Brexit vote. These are some of the hard market events ahead now. Arguably if there wasn’t any other event risk this week, markets would have used this summit as an excuse to push risk assets higher.”

SOICHIRO MONJI, SENIOR ECONOMIST, DAIWA SB INVESTMENTS, TOKYO

“The outcome was roughly in line with market expectations. It is reassuring for markets although this alone may not be enough to lift global stock prices.

It’s not like market had deep geopolitical concerns going into this meeting. Nor the summit would not lead to immediate improvements in boost corporate profits.”

Reporting by Yawen Chen and Christian Shepherd in Beijing, Karishma Singh in Singapore, Tom Westbrook and Swati Pandey in Sydney, Marius Zaharia in Hong Kong; Leika Kihara, Shinichi Saoshiro and Hideyuki Sano in Tokyo; Editing by John Mair & Shri Navaratnam

REUTERS

The Kootneeti Team - Trump Kim Summit

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This report has been written by The Kootneeti Team. For any feedbacks/query reach Editor@thekootneeti.com || Twitter: @TheKootneeti

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