The City is rattled this morning by reports of an unannounced meeting between Xi Jinping and Kim Jong Un in Pyongyang. The British government has warned that this emerging axis could be used to exert financial leverage against the West, and the markets are already pricing in the risk. If China and North Korea coordinate on currency swaps or debt holdings, the implications for gilt yields and capital flows are grave.
The Bank of England should be watching this closely, but as always, they are behind the curve. A new era of geopolitical brinkmanship is dawning, and the bottom line is that investors must hedge against state-driven volatility.
