Global stock markets were lower overnight, as rising geopolitical tensions between the US and North Korea put investor sentiment to the test. While stocks were lower, the “risk-off” mood saw safe havens such as gold and the Japanese Yen rally.
We have noted that 2017 was set to be the year of politics, with one of the important factors to watch this year being the new political administration in the US. North Korea has announced a warning through its state media of a nuclear strike at any sign of aggression from America and President Donald Trump replied on Twitter that the US would “solve the problem”, with or without China. US Secretary of State Rex Tillerson also said during a Group of Seven meeting in Italy overnight that Russia must abandon its support of Syrian President Bashar al-Assad’s regime.
Trump’s Tweet on the Situation:
While not high probability events, rising geopolitical risks given tension between the US and North Korea, and with Russia around the Syria situation are certainly a risk for markets if the situation escalates. We will be watching developments closely.
In stock specific news, BHP Billiton has been in the headlines again as an activist US hedge fund (Elliot Associates) is urging BHP to demerge its petroleum arm. We have been vocal supporters of BHP since late 2015, and recent moves have once again highlighted the benefits of its diverse commodity production base which includes oil.
BHP Billiton (BHP.AX)
BHP Billiton has been in the headlines again as an activist US hedge fund (Elliot Associates, which own 4.1% of BHP’s London listed shares) is urging BHP to demerge its US petroleum arm. This initially saw BHP shares jump as investors seemed to favour the idea.
BHP has officially responded to the idea by stating they have had dialogue with Elliot and regularly review opportunities to create value. However, BHP believe that the costs of the proposal (which would be to have a primary listed BHP vehicle in London, and a US listed oil arm) would significantly outweigh any potential benefits. We continue to watch developments as Elliot Associates has signalled it would continue to press BHP to spin off its US oil business, although BHP shares were little changed in trade overnight.
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