North Korea – red lines, high risks

Ultimately a nuclear North Korea is not acceptable. In the absence of a diplomatic miracle, the US will have to take military action to defang the regime. But whether the US exercises its military option or not, the crisis will still result in a conventional and nuclear arms race in the region. This will come at considerable economic cost given that, until now, most Asian countries have relied upon the US defence umbrella. We remain short Korean won versus the euro and underweight Korean assets.

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