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(Bloomberg) -- UBS Group AG’s wealth management unit got its in-house risk analysts to help gauge the threat of war on the Korean peninsula, mapped out the impact on its investments, and then decided to do nothing.

Even as North Korea’s deputy ambassador to the United Nations said a nuclear war “may break out any moment,” the money manager dismissed it as “saber rattling, drum beating.”

“It’s just two dogs barking at each other,” said Kelvin Tay, regional chief investment officer at UBS Wealth Management in Singapore, referring to the escalating rhetoric between North Korea’s leader and U.S. President Donald Trump. “Do you seriously think Kim Jong Un is going to fire a missile” at one of his enemies?

UBS Wealth Management is ascribing a 20 percent chance that war will break out, Tay, who helps oversee 2.2 trillion Swiss francs ($2.2 trillion) at the unit, said in an interview, while adding that even that figure is conservatively high. The investor sees no need to change its holdings, and is sticking with overweight positions on Chinese and Indonesian stocks even after both markets rallied, he said.

The fund manager’s analysis shows why South Korean assets have been in the vanguard of a global emerging-market rally, and why broader risk sentiment has been resilient to the mounting tension between the White House and Pyongyang. The Kospi index rose to a record on Tuesday even against the backdrop of Kim conducting nuclear tests and firing more than a dozen missiles this year. Foreigners have put a combined $34.9 billion into South Korea’s own stocks and bonds in 2017, and billions more into neighboring markets.

China Bull

Tay says UBS Wealth Management likes China’s internet stocks for their earnings potential, and lenders because they’re cheap relative to new-economy firms. He declined to discuss specific companies. Tencent Holdings Ltd., for example, is up almost 85 percent this year in Hong Kong, while Industrial & Commercial Bank of China Ltd. trades at about book value even after surging 36 percent in 2017.

Read more about the rally in China’s big banks here

In Indonesia, Tay says he sees an economy with “good fundamentals” where growth is poised to pick up. He points to a young population and a lower ratio of household debt to gross domestic product than in markets such as Thailand, Malaysia and Hong Kong. And he’s also looking at interest rates, where he sees the room for further cuts after the central bank reduced borrowing costs eight times since the beginning of last year.

If war does erupt on the Korean peninsula, Tay says the best market to be in is -- perhaps surprisingly -- Malaysia. Like Indonesia, it won’t be directly impacted, and local funds that have a strong influence over the market won’t rush to sell, he says. Foreign investors owned less than a quarter of the stocks on Bursa Malaysia as of the end of August, even as the percentage rose to the highest in two years, according to the nation’s equity exchange.

The Shanghai Composite Index and a measure of Chinese stocks traded in Hong Kong each rose 0.1 percent in early trading on Wednesday.

Tech Stocks

Tay flagged technology shares as big losers, noting that declines wouldn’t be limited to those listed in Seoul.

“That’s where the global supply chain is -- Korea, Taiwan, Japan and southeastern China, which is also quite close to the conflict,” he said.

The U.S. and South Korean navies started a joint drill involving about 40 warships on Monday, amid signs Kim’s regime is preparing for another missile launch or similar provocation. Trump has said all options are on the table to stop Kim, and the White House ruled out talks, but Secretary of State Rex Tillerson said the president wants him to push forward on diplomacy with North Korea “until the first bomb drops.”

For Tay, who expects China to enter North Korea if a war does start, that kind of scenario is still a long way off.

“When you see troops being amassed at the border, Chinese troops getting ready to move into North Korea, Japanese self defense force levels being raised to the highest level, and the U.S. Pacific Fleet being moved to the region, then I think it’s time to start panicking a little,” Tay said. “But we don’t see anything like that.”

(Updates to include Wednesday’s trading in ninth paragraph.)

To contact the reporters on this story: Livia Yap in Singapore at lyap14@bloomberg.net, Tom Redmond in Tokyo at tredmond3@bloomberg.net.

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Sarah McDonald, Tom Redmond

©2017 Bloomberg L.P.

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