North Korea: what to tell your clients

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As tensions escalate on the peninsula and clients express concern about how their investments will be affected, Fidelity's Asia fund portfolio manager David Urquhart talks about the reality of it all and the likely outcome.

Not only has David Urquhart been managing the Asia fund for more than three years, but having spent a few years based in Korea, he has special expertise on how to handle the political turmoil that is currently worrying clients.

He says that his experience provided a great deal of depth and a basis for moving into the Asia Pacific ex Japan fund. “You do get to know the regulatory risks and the opportunities in that country… As the economic environment changes and different political environments pass through, you can see and understand how all of this impacts on these companies.”

There are three factors that influence markets, says Urquhart: fundamentals, valuations and sentiment. The current situation in Korea is having an impact on the sentiment side of things, and some on the valuations because there has been an absence, or nervousness, around buying.

Urquhart says that if history is any guide, “the impact on the Korean market of these occasional rise in tensions on the peninsular tends to be fairly temporary and transient. So u will see the market pause, or in some cases dip for a few days, or a week or two, and then things start to stabilise again.”

He thinks that this week will see a lift in tensions, with Kim Jong-Un’s birthday. “They’ll probably be celebrating in the street in North Korea, the military may decide to do a missile test in celebration…But I don’t think it’s going to be anything more than that. And once they’ve done that, expectation would be that they’ve shot their gun into the air and that’s going to be it.”

He doesn’t recommend any drastic investment changes, but will monitor the situation and look at the impact it’s having on valuations.

When asked what makes a good fund manager, Urquhart says a natural curiosity and independent thinking are must-haves. “If everyone likes something you have to have the ability to step back and think ‘is that love deserved’. There are times when you’ll definitely need to be taking the opposite view to what most people in the market are taking.”