By Lisa Jucca and Michelle Price
HONG KONG (Reuters) - North Korea's nuclear threat and the risk of a presidential impeachment in the democratic South have turned the Korean peninsula into Asia's biggest unknown for global investors, said Blackrock's head of active investing for Asia.
The surprise election of Donald Trump as U.S. President earlier this month coupled with Great Britain's plans to leave the European Union are holding investor's attention due to the wide-reaching implications of both events for the global economy.
But Asia, which saw North Korea conducting repeated nuclear tests this year, harbors major geopolitical risks of its own.
"When we talk about this region, what has been underestimated are some of the risks we have even here and may have flown under the radar just because of what’s been happening in the rest of the world," Belinda Boa, Head of Active Investments for Asia Pacific at BlackRock, told Reuters in an interview on Monday.
"Korea is for us a significant risk right now. When I think about the whole uncertainty around the presidency as well as the concerns around North Korea, I would call that out as a major concern for us in this region."
Despite being subject to United Nations (U.N.) and other international sanctions for its military programs, North Korea's leader Kim Jong-un has vowed to build a nuclear arsenal.
The U.N. Security Council has held discussions to adopt toughened new sanctions in light of the North's more aggressive stance.
Meanwhile in the South, President Park Geun-hye is embroiled in a corruption scandal that could endanger her political survival.
Boa said the market has not fully priced in the geopolitical risks in the Korean peninsula.
"We haven’t seen the impact in terms of the actual pricing mechanism because it’s extremely difficult to price a risk like that," said Boa. "But there’s no doubt that the uncertainty around both North Korea ... and now South Korea, means for us that it’s a heightened risk."
Despite the concerns surrounding North and South Korea and the risk of an expected backlash against global trade by the upcoming Trump administration, Boa remained positive on the long-term prospects for the emerging economies of Asia.
Boa singled out India and Indonesia because of reforms they pushed through to fight tax evasion that could build greater investor confidence.
India took the unprecedented step earlier this month of issuing new large-denominated banknotes to fight the black economy, a move that will hit growth in the next three to six months but should ultimately build confidence in the nation, Boa said.
In Indonesia, the government was able to lure billions of dollars hidden offshore back into the country through an aggressive tax amnesty.
"These are the type of reforms that give people confidence both in markets and investor transparency," said Boa.
"That is the story that underpins Asia. In the rest of emerging markets we have not seen as positive a reform story than we have seen in this part of the world."
(Reporting by Lisa Jucca and Michelle Price; Editing by Christian Schmollinger)