Factors behind pricing of major currencies is favorable for risk carry trade

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Strategy Markets have been doing great this year. But it is tough anyway. North Korea escalation is hanging above the markets as a sledge hammer, ready to fall anytime as a guillotine and cut the roots of the risk appetite. Similar effect, albeit much less bloody is the rate hike priced in for the Fed’s December meeting. Regarding North Korea – its seems that Asian markets disregard that risk completely. China is up 36% YTD (to end of September) while Korea stocks are up 28% in the same time period. At first glance -the market performance in those countries implies that insiders in the region disregard the North Korean risk. On the other hand the rise in those markets can be a sign of investor’s blindness with regards to the NK risk event. China markets have been strong this year as a proxy for GEM risk appetite that was very robust, and because of the MSCI rebalancing next year that will increase the weight of China in MSCI GEM index to 37% from current 28% (http://midlincoln.com/viewchart.php?v=x573.jpg) while S Korean stocks could be stronger on the back of weaker bonds markets in the country. Markets are usually wrong, hopefully this year it is an exception....