(Bloomberg) -- After a year filled with “Rocket Man” insults and threats of a nuclear war, President Donald Trump and Kim Jong Un pledged to work toward peace negotiations.
And the measures of volatility in South Korea’s financial markets reflect the shift away from conflict.
“The easing in geopolitical tensions in the Korean peninsula has helped support Korean assets and reduced volatility further,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore. “Volatility in global markets had fallen to low levels last year amidst ample liquidity and an improving global economy.”
While the historic agreement signed in Singapore on Tuesday set no deadline and left the path to disarmament undefined, it is a stark improvement from a year ago when the two leaders called each other “Rocket Man” and “dotard.”
Here are charts showing how volatility has evolved in South Korea over the past 12 months:
The Kospi 200 Volatility Index, a gauge of investor expectations for future price swings, has tumbled 46 percent since jumping to a two-year high in February at the start of the Winter Olympics in South Korea as investors watched for provocative activity from North Korea. The Kospi 200, which includes Samsung (LON:0593xq) Electronics (KS:005930) Co. and SK Hynix Inc. among its largest members, has since advanced 3.9 percent.
One-month implied volatility for the South Korean won has also been on a downtrend since peaking in 2017, and a more recent spike early this year -- again coinciding with the start of the Winter Olympics in South Korea. Volatility levels have ebbed from the February high. And the cost of insuring South Korean sovereign debt against non-payment continues to slide, now down more than 30 basis points from a September 2017 high.
“The world had very low expectations going in, and according to them something ‘historic’ was signed,” said Olivier d’Assier, Singapore-based head of applied research for Asia Pacific at Axioma Inc. “But as everyone knows, whether this is a success or just another failure, will only be known years later. So, while the summit seems to have eliminated any downside for now, the peace dividend upside potential remains unknown and speculative.”