North Korea fired an ICBM in its first provocation since President Trump labeled Pyongyang a sponsor of terrorism this month. The missile was launched at 3:17 a.m. local time, reached an altitude of more than 4,000 kilometers (2,500 miles), and traveled about 1,000 km before splashing into the Sea of Japan. Trump responded that the U.S. "will handle" the situation. The Kim regime's last test firing was in September.
If you intend to fade this morning's escalation, a tactical long Kospi offers value:
Attractive entry level: Kospi shares had underperformed in recent days largely due to a fall in Samsung - reported catalyst was a GS research downgrade. If you think very little has changed fundamentally for Samsung - or for Kospi constituents broadly (which is cheap in relative terms) - then current levels are attractive. (current: 2508)
Good external backdrop: SPX is up overnight on the back of increased prospects of a US Senate floor vote as soon as tomorrow (Thu) after Sen. Bob Corker (R-TN, of 'Trump daycare' fame) said he would allow the bill to pass the committee stage. Caveat: The bill still has to pass and any delay or hints of objection from key senators (eg Collins R-ME or McCain R-AZ) should be watched tonight.
Technical KRW weakness: The KRW has strengthened in recent months partly due to increased prospects of a BOK rate hike tomorrow (Thu). A 'dovish hike' from the BOK - which is in line with their preference for a weak won - is likely to spur sell-the-fact flows which could send USD-KRW back towards 1100 (current 1084), supporting Korean equities, given traditional inverse relationship. Caveat: KRW strength also reflects reduced DPRK risk premium, which has risen - after this morning's launch - and could rise further on more missile testing or escalating rhetoric. If these happen, this would be negative for both KRW and Kospi - a risk to this trade, and a reason to keep it tactical.
Kospi: Current 2508, target 2540-50 or ~+1.5% by Friday close.
Kospi (index/active futures) cheapened recently while strength in the KRW (spot/1mth) has priced in a BOK hike tomorrow (Thu).