Time to buy gold and other safe havens after North Korea's nuclear test, history shows
The days following a North Korea nuclear test is a time to buy shares of stable assets like utility stocks and gold, while selling Japanese, Korean and Taiwanese shares, history shows.Defense experts estimate the rogue regime's test Sunday had an explosive yield of more than 100 kilotons. To put in perspective, that would mean the explosion was at least six times more powerful than North Korea's previous test in September of last year, which military analysts put at around 15 kilotons. North Korea's relentless and escalating pursuit of nuclear weapons gives this week's financial markets a theme of "risk-off" protection, where investors perceive risk as high and tend to gravitate toward investments considered safer. History validates that stance. CNBC, using hedge fund analytics tool Kensho, looked at what happened to financial markets after the last five times North Korea conducted a nuclear weapons test, beginning with its first test in 2006. As the recent test ranks as by far the most powerful, during one of the most tense times in the continuing conflicts, impressions on global markets could be as much, if not more, than in previous years.First, here's what happened to major U.S. financial markets in the week following a North Korea nuclear test, according to Kensho.While Treasuries may be a common sense safe haven during times of geopolitical uncertainty, Kensho found a consistent decline after previous nuclear tests. Gold, however, was a consistent outperformer.Gold was already on its way to a big weekly move, with futures jumping on Tuesday by 0.9 percent to nearly their highest in a year. And the CBOE Volatility Index (STOXX: .VIX) tends to surge, history shows. Next, let's look at a broader scan of what moved the most to the downside among global market assets in the wake of a test.Avoiding the reverberations after a North Korean nuclear test is as simple as avoiding several Asian markets in close proximity, as well as European stocks. Exchange traded funds tied to Japanese, South Korean and Taiwanese stocks consistently declined in the 5-day aftermath of a test.And finally, scanning a broader set of assets and exchange-traded funds reveals these winners in the week following a North Korea test. Kensho calculates that among what works after a nuclear test are the iPath S&P 500 VIX Short Term (NYSE Arca: VXX) and SPDR Utilities Select Sector (NYSE Arca: XLU) exchange traded funds, who saw bumps of more than 3 percent and 1 percent, respectively. Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho. The days following a North Korea nuclear test is a time to buy shares of stable assets like utility stocks and gold, while selling Japanese, Korean and Taiwanese shares, history shows. Defense experts estimate the rogue regime's test Sunday had an explosive yield of more than 100 kilotons. To put in perspective, that would mean the explosion was at least six times more powerful than North Korea's previous test in September of last year, which military analysts put at around 15 kilotons. North Korea's relentless and escalating pursuit of nuclear weapons gives this week's financial markets a theme of "risk-off" protection, where investors perceive risk as high and tend to gravitate toward investments considered safer. History validates that stance. CNBC, using hedge fund analytics tool Kensho, looked at what happened to financial markets after the last five times North Korea conducted a nuclear weapons test, beginning with its first test in 2006. As the recent test ranks as by far the most powerful, during one of the most tense times in the continuing conflicts, impressions on global markets could be as much, if not more, than in previous years. First, here's what happened to major U.S. financial markets in the week following a North Korea nuclear test, according to Kensho. While Treasuries may be a common sense safe haven during times of geopolitical uncertainty, Kensho found a consistent decline after previous nuclear tests. Gold, however, was a consistent outperformer. Gold was already on its way to a big weekly move, with futures jumping on Tuesday by 0.9 percent to nearly their highest in a year. And the CBOE Volatility Index (STOXX: .VIX) tends to surge, history shows. Next, let's look at a broader scan of what moved the most to the downside among global market assets in the wake of a test. Avoiding the reverberations after a North Korean nuclear test is as simple as avoiding several Asian markets in close proximity, as well as European stocks. Exchange traded funds tied to Japanese, South Korean and Taiwanese stocks consistently declined in the 5-day aftermath of a test. And finally, scanning a broader set of assets and exchange-traded funds reveals these winners in the week following a North Korea test. Kensho calculates that among what works after a nuclear test are the iPath S&P 500 VIX Short Term (NYSE Arca: VXX) and SPDR Utilities Select Sector (NYSE Arca: XLU) exchange traded funds, who saw bumps of more than 3 percent and 1 percent, respectively. Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.
More From CNBC
