A key bellwether of North Korea tensions is surging

South Korea’s supporters cheer prior to the start of a Group H football match between South Korea and Belgium at the Corinthians Arena in Sao Paulo during the 2014 FIFA World Cup on June 26, 2014. AFP PHOTO / ODD ANDERSEN

Tension between the US and North Korea helped create a small dent in several stock markets around the world on Wednesday.

But one stock, described as a bellwether of tensions in the Korean peninsula, is making an outsized move higher.

Shares of Victek, a South Korean maker of military equipment, surged by as much as 20%. South Korea, a longtime US ally and North Korean adversary, may need to increase investment in its defence systems if conflict escalates, Bloomberg reported.

Shares of Speco, another Korean defence stock, surged 13%.

US president Donald Trump said Tuesday that the US would respond to threats from North Korea with “fire and fury” following reports that the country had built nuclear warheads small enough to fit on a long-range missile.

North Korea responded a few hours later by threatening to strike Guam, a US territory in the Pacific that holds key military bases.

“Trump’s rhetoric appears to be the sternest by a US president since 1993, when Bill Clinton, during a visit to the North-South border, warned that it would be pointless for Pyongyang to develop nuclear weapons, because if they ever used them, ‘it would be the end of their country,'” BMI Research said in a note on Wednesday.

BMI continued:

“Following Trump’s comments, the share price of South Korean electronic warfare equipment manufacturer Victek spiked sharply to KRW5,110 (see chart below). As we have mentioned previously, Victek’s share price is a key bellwether of tensions on the Korean Peninsula. It previously spiked to a record high of KRW6,180 on April 11, 2017, when Trump appeared to be gearing up for military action against the North. Any further provocations by Pyongyang could send the share price above the April high.”

“Despite the increase in tensions, we still believe that a US strike on North Korea is unlikely, as the notion appears to lack the support of top US political and military leaders, owing to the dangers of triggering a new war in North East Asia that could devastate South Korea and drag in Japan and China,” BMI said.

Without a real risk to the global financial system, markets may quickly rebound from this geopolitical scare as it often has. Meanwhile, the defence companies that would benefit in the event of a conflict are worth keeping an eye on.

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