Big Money Betting on an Open North Korea

Big Money Betting on an Open North Korea

Samsung Securities Co., said Thursday it has launched a team tasked with analyzing possible investment in North Korea amid a thaw in cross-border ties.

Established as part of the company’s research center, the group aims to “provide comprehensive and systematic analysis with longer-term perspectives, at a time when geographical circumstances regarding North Korea go beyond mere short-term market themes to a new growth momentum for local firms,” the company said.

The launch of the team, a first for local brokerage firms, will allow the affiliate of South Korea’s largest conglomerate, Samsung, to cooperate further with securities firms in China and Vietnam so as to learn their knowhow and get more information on communist economies, it added.

Hopes of inter-Korean cooperation have been raised after President Moon Jae-in and North Korean leader Kim Jong-un held two rounds of summit talks in recent weeks, with Kim committing his country to denuclearization.

Diplomacy is also in full swing for the planned June 12 summit in Singapore between U.S. President Donald Trump and the North Korean leader.

Shares of companies that are expected to benefit from better inter-Korean ties have spiked this year, the bourse operator said Thursday, while also calling for a cautious approach to such volatile stocks.

The findings are the result of an analysis by the Korea Exchange (KRX) on the movements of 63 shares — 29 from the main KOSPI and 34 from the secondary KOSDAQ markets — up till May 15 of this year.

According to the data, the index for changes in the prices of shares that are forecast to benefit from prospective inter-Korean economic cooperation came to 207, while that for the overall market stood at 101, slightly higher than the benchmark of 100.

While the overall market fluctuated 10.1 percent during the cited period, such theme shares moved 110.6 percent this year, the KRX noted.

The prices of the 63 items showed signs of picking up from the beginning of this year, but spiked in earnest after the historic inter-Korean summit on April 27.

Such a greater volatility caused the KRX to issue more than 100 investment advisories, accounting for 14.9 percent of the total, according to the bourse operator.

The average market capitalization per company linked to inter-Korean relations stood at 270.3 billion won (US$252.92 million), with their turnover and operating profits coming to 62 percent and 14.4 percent, respectively, compared to the average of all listed companies, the KRX added.

Retailers turned out to be major players in this field, with their proportion coming to 89 percent compared to their overall market share of 78.8 percent, according to the data.

In contrast, foreigners and institutions accounted for 10.4 percent of the trade in the shares, far lower than the 20.1 percent overseas trade for all companies.

“The equities linked to cross-border economic ties could fluctuate more often and to a greater degree, in line with changes in political circumstances, and those companies could be easily be swayed by external factors, as many of them are relatively small-scale ones,” the KRX said in a statement.

“Investors should be cautious in picking up such theme shares and make thorough analyses of the possible positive effects inter-Korean ties could bring about for their investments,” it added.

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S. Jack Heffernan Ph.D. Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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