June 12, 2018 / 7:33 AM / 8 days ago

Expert Views: Trump and Kim pledge to work towards denuclearisation at historic summit

SINGAPORE (Reuters) - U.S. President Donald Trump and North Korean leader Kim Jong Un pledged on Tuesday to work toward complete denuclearisation of the Korean peninsula, and signed a ‘comprehensive’ document at a landmark summit in Singapore. In turn, Washington committed to provide security guarantees for the Asian nation, though the joint statement was light on specifics.

U.S. President Donald Trump and North Korea's leader Kim Jong Un walk during their summit at the Capella Hotel on Sentosa island in Singapore June 12, 2018. Anthony Wallace/Pool via Reuters

REACTION IN MARKETS

The U.S. dollar gave up some early gains, though it was still up against the safe haven yen while shares were mildly positive.

MSCI’s index of Asia-Pacific shares outside Japan climbed 0.1 percent and Japan’s Nikkei gained 0.3 percent. South Korea’s KOSPI index was flat.

European stocks erased earlier modest gains with the pan-European STOXX 600 flat, while futures pointed to a steady start for Wall Street, with E-Minis for the S&P 500 up 0.05 percent.

Following are reactions to the summit and the agreement the two leaders signed:

JENNY TOWN, 38 NORTH KOREA MONITORING PROJECT, WASHINGTON

“Broad commitments. Enormous publicity. Parallels to past agreements/commitments. The question becomes, does the nature of this declaration to this administration mean it will create enough political will to fill in the details or do they chalk it up as a win and move on?”

ADAM MOUNT, SENIOR FELLOW, FEDERATION OF AMERICAN SCIENTISTS

“On nuclear issues, the communique is a vague and aspirational statement. North Korea signed documents committing to denuclearisation of the peninsula as far back as 1992. In fact, this communique is significantly softer than the language North Korea agreed to in 2005. It conspicuously omits references to verification and irreversibility. The Trump administration failed to codify nuclear and missile test freezes, which raises the risk that this peace process could collapse over certain types of missile tests.

“It is likely that the Trump administration makes another attempt to negotiate concrete nuclear limits, but American leverage will never be as high as it was in March, before Trump accepted the summit invitation.

“The Trump administration will sell this as an enormous win, even though American leverage was not exerted fully or effectively. Though this would be considered a failure for other presidents, the world will breathe a sigh of relief for a statement that will avoid a ruinous war. American allies will appreciate the commitment to a peace process, preserving some US standing in the region.”

BRAD GLOSSERMAN, VISITING PROFESSOR AT TAMA UNIVERSITY, JAPAN

“The Chinese will be happy about the outcome because it … promises a long process, no breakdown, and opens the door for a process in which they will be engaged. Similarly, North Korea, Kim – wants a photo op, gets it, got an invitation to the White House. He has an open door to the weakening of sanctions, no one is going to be putting on the squeeze. Everything North Korea wanted – I see no downside.

“Moon Jae-in like Trump has reason to applaud a lowering of tensions. But apart from a lowering of tensions, in terms of genuine change and commitments they didn’t make before, I see nothing.

“Anyone who expected more details from this particular meeting was deluding themselves.”

LIANG YABIN, SENIOR RESEARCHER, PANGOAL, CHINESE PUBLIC POLICY THINK TANK, BEIJING

“This joint declaration is in line with the three principles of ‘no chaos, no war, and peaceful settlement’ proposed by the Chinese government. The DPRK nuclear issue cannot of course be resolved overnight, but we have seen more peace and hope in today’s DPRK-US talks.”

ANTHONY RUGGIERO, SENIOR FELLOW, FOUNDATION FOR DEFENSE OF DEMOCRACIES THINK TANK, WASHINGTON

Says agreement looked “similar to the 2005 Joint Statement where the sides committed to the denuclearisation of the Korean Peninsula and the U.S. agreed not to attack or invade North Korea. Unfortunately, we do not know if Kim has made a strategic decision to denuclearise and it is unclear if further negotiations will lead to the end goal of denuclearisation. This looks like a restatement of where we left negotiations more than 10 years ago and not a major step forward.

“The North Koreans have made this commitment many times before and each time they have broken those promises. The question now is whether Pompeo and his North Korean counterpart can move quickly toward a substantive and irreversible action toward denuclearisation.”

STEWART JACKSON, POLITICS LECTURER, UNIVERSITY OF SYDNEY, SYDNEY

“Until we see concrete movement on it, it doesn’t mean a great deal. That said, we have to keep in mind that Nixon visiting China in the early 70s didn’t seem to do enormous amounts of things immediately, but it represented far more. That Trump’s been able to do it might annoy some people, but it doesn’t really matter who does it, if it’s possible to at least reduce tensions on the Korean peninsula.

“We haven’t seen the details, what does denuclearisation mean to either of them. Do they actually understand what people think it means? Is it getting rid of everything or is it: ‘Oh well, we won’t go any further’?

“There’s awful lot of unknowns, if you like, attached to this. It’s a really useful first step, but let’s see what happens next...I’d just be wary of drawing too many conclusions from it, but at the end of the day the simple fact that they sat down and had some sort of discussion is a good thing.”

WANG PENG, ASSOCIATE RESEARCH FELLOW AT CHONGYANG INSTITUTE FOR FINANCIAL STUDIES, RENMIN UNIVERSITY OF CHINA

“In the future, North Korea will cautiously maintain a delicate balance between China and the United States but North Korea will still rely on China for major issues. At the same time, North Korea will use the strength of the United States to offset China’s impact on North Korea. Judging from the current state of China-U.S.-North Korea relations, in the foreseeable future, China cannot be marginalised. Instead, it will play a more proactive, active and positive role in the affairs of the peninsula.”

KOREA CHAMBER OF COMMERCE AND INDUSTRY, SEOUL (Translated statement)

“We deem today’s summit between the United States and North Korea as a historic summit that opened a new era of peace and co-existence.

“We hope today’s agreement will be carried out without fail to establish permanent peace on the Korean peninsula.

“South Korea’s industrial sector will actively cooperate by finding its best role to better inter-Korean relations and it will fully prepare for a new age of economic cooperation between North and South Korea.”

SHANE OLIVER, CHIEF ECONOMIST, AMP CAPITAL, SYDNEY

“I’m not overly surprised, because I don’t think there’s been any peace deal in history which has occurred within one day - they’ve all unfolded over many months or sometimes years, in the case of the talks between Gorbachev and Reagan in the 80s, that took a long, long time to get somewhere.

“I think markets will probably treat it as an incremental positive, not dramatically, because there’s no firm details there.

The problem, going forward, is that there’s going to be a lot of twists and turns along the way, where it looks like its failing, and then there’s another breakthrough. We could be waiting for a long time here before we get to the final point which would be the denuclearisation of North Korea.”

“That’s why you haven’t seen this sort of ‘you beaut’ reaction from financial markets, it’s fairly subdued because it’s going to be a long, slow process from here. But it is a positive, we haven’t seen markets sell off - most markets are up.”

ZHANG YI, CHIEF ECONOMIST, ZHSR-CAPITAL, BEIJING

“First, today’s announcement is only an agreement framework that lacks any detail on implementation. Anything could happen if there’s no concrete details. I think the key really hinges on how Kim wants to drop nuclear weapons. Kim is a smart man and you can see Trump and Kim they admire each other.

“If Trump and Kim could establish a good working relationship, this could lead to North Korea’s opening up. But it’s very likely that North Korea would only have a limited degree of opening up and could start with building multiple industrial parks like the one in Kaesong.”

SEAN DARBY, CHIEF GLOBAL EQUITY STRATEGIST, JEFFERIES, HONG KONG

“The talks appear not to have progressed much further than pleasant platitudes and introductory remarks but it left with both parties feeling that there had been some success getting the whole process started. The much anticipated ‘denuclearisation plan’ was always going to be a much more difficult starting point for negotiations.

“In this respect, we think future talks are likely to follow the path of the Reagan-Gorbachev’s summits in the 1980s as both sides tried diplomatically to end the nuclear arms race. It took over two years and many rounds of meetings to get a treaty signed. “

AYAKO SERA, MARKET STRATEGIST, SUMITOMO MITSUI TRUST BANK, TOKYO:

It was a historic summit with lots of positive-sounding but vague agreements, with no strict timeline. If you look at the outcome closely, there has been nothing particularly that would make investors change their scenarios. It’s just that the summit didn’t heighten the geopolitical risks. Investors are already shifting their focus to other key events coming up this week— namely, FOMC, ECB meeting and U.S.-China trade talks.

HIDENORI SUEZAWA, FINANCIAL MARKET ANALYST, SMBC NIKKO SECURITIES, JAPAN

“The summit meeting turned out to be more positive than expected. It was a historic political show.”

“The document Trump and Kim signed appears to follow in the footsteps of the one issued in Panmunjom. We still need to wait to see over the course of next six months to one year whether what was agreed this time will be effective.”

“Trump must be keen to see some meaningful results ahead of mid-term elections this year, while Kim is desperate for economic aid and lifting of sanctions as well as guarantee for his regime. As such, North Korea may be more earnest than in the past in fulfilling an agreement.”

TRINH NGUYEN, SENIOR EMERGING ASIA ECONOMIST, NATIXIS, HONG KONG

“Although it’s meaningful, people are watching for concrete steps. North Korea will have to prove that it will completely denuclearise and to do so it will have to give up the efforts that it has taken to get here. It has to match words with actions and only time can give you that concrete answer.

“We don’t expect any significant (market) movement from this. We never had this expectation because we never thought that investment in South Korea is driven by the escalation or de-escalation. The drivers are monetary policies, fiscal policies, what’s happening with structural issues, demographics, what’s happening with trade tensions.”

YASUHIDE YAJIMA, CHIEF ECONOMIST, NLI RESEARCH INSTITUTE IN TOKYO

“This is only the beginning of what would be a very long and grinding process, so uncertainty will persist. Markets probably don’t know how to react given the ambiguous nature of the agreement. Each event will cause big market reaction. We’ll probably see a repeat of this.

“So they’ve agreed to verify denuclearisation but how would you do that? To me, that sounds almost impossible. North Korea has a history of disappointing”

KEVIN LAI, CHIEF ECONOMIST ASIA EX-JAPAN, DAIWA CAPITAL MARKETS, HONG KONG

“It looks like the summit has gone well, at least ... Trump was quite happy with the overall result. I would expect a few more meetings between both sides to work out the details on how to achieve verifiable denuclearisation.

“That will pave the way for full normalisation of relations. The conditions are positive. Then we can even talk about economic development for the North.

“We are no longer very concerned about the possibility of a military conflict. That probability has gone down a lot and potentially we may be talking about the possibility of economic advancement in the North and even unification.

KOTA HIRAYAMA, SENIOR EMERGING MARKETS ECONOMIST, SMBC NIKKO SECURITIES, TOKYO

“While impact on the broader emerging markets is likely to be limited, today’s outcome is positive for regional markets like those in China, South Korea and Taiwan.

“Now that Trump and Kim appear to have discussed denuclearisation, the next focal point is whether and when negotiations will continue. There was a significant amount of diplomatic symbolism today, but assessing the exact significance for the financial markets is rather difficult at this point.”

SUE TRINH, HEAD OF ASIA FX STRATEGY, RBC CAPITAL MARKETS, HONG KONG

“Both sides stand far, far apart on what denuclearisation means. To the U.S., it means North Korea must deliver complete, verifiable and irreversible denuclearisation. To Kim, it means North Korea suspends nuclear and missile tests in exchange for major economic concessions and the U.S. stepping back as torchbearer for the Asian region (basically dismantling its alliance with South Korea and ultimately the region as a whole). Kim has never announced the intention of abandoning his existing nuclear arsenal, which he calls a “treasured sword”.

“Per previous peace deals, the main issue will be the pace of implementation, which includes agreement on a verification protocol.”

U.S. President Donald Trump and North Korea's leader Kim Jong Un look at each others before signing documents that acknowledge the progress of the talks and pledge to keep momentum going, after their summit at the Capella Hotel on Sentosa island in Singapore June 12, 2018. They are flanked by Kim Yo Jong, sister of North Korean leader Kim Jong Un, and U.S. Secretary of State Mike Pompeo. REUTERS/Jonathan Ernst

Reporting by Reuters journalists throughout Asia; Editing by John Mair & Shri Navaratnam

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