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Views from Korea (one wedding and a summit)

Events on the Korean peninsula were high on our agenda through the month of April. As we all know, Kim Jong-un became the first North Korean leader to cross into South Korean territory, since the end of the Korean War in 1953, for his historic meeting with President Moon Jae-in. At the same time, very few of you will know, our colleague, Calum McLellan, flew to Korea – along with his parents and close friends – to marry his fiancée GiGi. For the newlyweds, we all hope the second half of April 2018 will be recalled as a happy and important time of their lives together. Whether the same period will be remembered as fondly by the people of Korea, only time will tell.

Notwithstanding this, the possibility of huge change is now underway, not only for the people of Korea and the wider region, but for the world as a whole. In common with these significant geopolitical events, the vast majority of us rely on our national media and commentators for their insights and interpretation of what is happening. On this occasion, we have been able to discuss matters with a colleague who was there on the ground and – in a break from the norm – we have asked Calum to pen some words for this VFTD. We suggested he share some experiences of his wedding and Korean culture more generally, but also asked him to comment on the local reactions to the two leaders meeting.

Flying in, visitors are reminded that this is a country still at war. While the plane arcs across most of the globe, it then banks over Beijing – detouring south in order to bypass the North, just 22 miles (35km) away – before turning sharply into Inchon Airport. Thoughts of conflict are quickly forgotten when you land. Regular trains bring travellers almost immediately into the sprawling metropolis of Seoul. In spring, the route is lined with cherry blossom, introduced by the Japanese, but most of the land is taken up by tower blocks housing the c.26mn in the Seoul Capital Area.

In Seoul you are never far away from a restaurant. The nation has many national dishes, but all are accompanied by Kimchi; a fermented cabbage in a garlicky chilli sauce, similar to spicy sauerkraut. Despite a plethora of choice, it is not a place for the strict vegetarian, as a couple of my friends found out, as almost every dish has some form of meat. But at least there is some solace in the fact every part of the animal is used – one of the most popular takeaway options in Korea is pork feet, served in lettuce leaves.

When not eating, there are plenty of attractions to see, including historic palaces and museums or a visitor may climb the mountains that tower above the city. There are also 21st century attractions including VR arcades, which despite still having average graphics, provide an incredibly life like experience.

Getting married in Korea is a bit different, largely treated as a commercial venture. The wedding comprises of three stages; a British style section (albeit with a little bit of karaoke instead of a hymn), followed by a more traditional service reserved for the groom’s family and, finally, a buffet style meal. All this is usually completed within an hour and a half (enforced by the limit on car parking), to ensure the venue may be cleared in time for the next wedding.

To help prolong the festivities, we had arranged a BBQ at my parent-in-law’s house on an island near Seoul, which offers one of the best views into the North. To arrive there, we had to cross a military check point where a fully armed soldier boarded our bus as we entered this fortified area. At the nearby peace observatory, you can look through binoculars to see North Koreans working the fields, just 2km away. Being this close to the boarder was noisy, as both sides blasted propaganda through loudspeakers to the other side.

However, with the warming of North-South relations, this could be changing. I was lucky enough to be in Seoul train station, on my penultimate day, just as Mr Kim and Mr Moon took to the stage to announce the outcomes of their summit. The South Koreans crowded round the TV screens to listen to the news and, when the commitment to peace within the year was announced, there were measured cheers from the crowd. Whilst they are happy there is a roadmap for peace, they remain sceptical around the timing.

Before heading to the airport, from my parents-in-laws’ house, it was noticeable that calm had be fallen the island. Both sides had turned off the loud speakers and, for the first time, we could hear the birds and the frogs in the paddy fields. Progress has been slow, but now peace in the peninsula has a much better outlook.

Such contemporary geopolitical events always capture the headlines, but as we have argued in the past, they rarely impact asset prices over the long-term (click here). It was therefore interesting to read a recent thought piece, from The Boston Company, stating that;

“Geopolitics will have a much more powerful influence on global equity markets going forward and should not be underestimated as a result.” April 2018.

Their thesis is markets have become accustomed to a world order dominated by the US and underpinned by values of free trade and liberal democracy. As a consequence, the equity market embedded a low global political risk premium in its cost of capital. Now, as the power of the US slowly erodes and other nations expand their own spheres of influence, slow but profound shifts are occurring in the global economic environment. They argue that, until recently, unconventional monetary policy – combined with the rise of ETFs – have distorted capital flows and masked the consequences in markets. However, recent price action of political risk off assets (see graph), indicates that these risks are having an increasing effect.

Whilst we are long term thinkers, it is for this reason we have an allocation to gold, across the majority of our strategies, and are watchful of any escalation in political tensions – in particular the rising noise around tariffs and trade. As those of us married for longer than Calum are aware, maintaining diplomatic relations requires hard work and constant negotiating.

Julia Warrander and Russell Waite

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