Friday, May 30, 2014

Korea: Wagering on Unification


According to Yonhap News Agency, even as other trusts face selling sprees from investors seeking to take advantage of the recent rallies in the stock market, capital is continuing to flood into South Korea’s two unification-tied funds. With their portfolios largely tied to companies operating in the inter-Korean industrial complex at Kaesong, the funds raised around $33.2 million between March 13 and May 23.
While market analysts rarely look kindly on funds that are highly vulnerable to unpredictable political developments and other external risks, an increasing number of investors are clearly anticipating changes in North Korea in the near-future. Park Sung-hyun, a strategist at Hanwha Investment and Securities Co., noted that he believes North Korea will seek a diplomatic breakthrough with South Korea soon, as Pyongyang’s dual strategy of developing nuclear weapons while pursuing economic growth (“Byongjin Line”) has clearly run aground.
Although Park did not set a timeline for when this breakthrough between the Koreas might occur, others were more forthcoming with their estimates. For instance, Jim Rogers, famous for co-founding the Quantum Fund with George Soros in 1973, noted that he believes unification may be possible in five years. Regardless of the exact timing, both Park and Rogers are united in their faith that the potential gains from the merger of South Korean capital and technology with North Korean natural resources and labor far outweigh the risks.
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