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Title ‘North Korea Risk Is an Investment Opportunity’: Why South Korea’s Markets Are Booming
Posted by Stanley Yoon (ip:)
  • Date 2017-08-18 11:20:11
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‘North Korea Risk Is an Investment Opportunity’: Why South Korea’s Markets Are Booming

Min Sun Lee


South Korean stocks retreated and the country’s currency fell to a four-week low after the U.S. and North Korea traded threats late Tuesday.

Even still, plenty of Koreans say they will keep buying shares, the latest sign that many investors are reluctant to pull back from global stock markets that have rallied this year.

For example, the warlike rhetoric doesn’t faze avid stock investor Park Young-sook.

The 60-year-old private-school owner from the Seoul suburb of Suwon has been putting money into South Korean stocks for more than a decade, and has seen tensions with the country’s northern neighbor rise and fall. She sees North Korean belligerence as largely irrelevant to the performance of her portfolio—or a chance to buy more if the market dips.

“In the long term, North Korea risk is an investment opportunity,” Ms. Park said. “Our country or companies will not fail because of North Korean risk.”

People like Ms. Park are a big reason South Korea’s stock market remains near record highs despite an escalating war of words between U.S. President Donald Trump, who on Tuesday threatened North Korea with “fire and fury,” and North Korean leaders, who responded that the country was considering a missile strike at a U.S. military base in Guam.

Korea’s benchmark stock index, the Kospi, has fallen slightly since its record high of 2451.53 in July, and dropped a further 1.1% on Wednesday to 2368.39. The won also weakened to a four-week low of 1,135 per dollar. The cost of South Korean credit-default swaps—derivatives that let investors hedge against sovereign default—increased in July, in a sign that some investors thought risks in the country were rising.

Yet the Kospi is up 17% this year, making it one of the best-performing indexes in the world. In July, it notched its first eight-day winning streak in six years, despite a string of North Korean missile tests and the prospect that South Korea’s most powerful businessman, Samsung conglomerate heir Lee Jae-yong, could be sentenced to years in prison.

Recent news reports indicate North Korea may have succeeded in building a nuclear warhead that can fit atop of one of the regime's intercontinental missiles. WSJ's Gerald F. Seib examines what that means for the U.S., where President Donald Trump Tuesday threatened Pyongyang with "fire and fury." Photo: AP

Far from feeling cowed, South Korea’s mom-and-pop investors are taking on more risk, with an unusually large increase this year in the number of people making big stock trades of 100 million won (around $89,000) or more, and $76.3 billion—a record amount—of borrowing to fund stock purchases at the end of July.

Stock-investing seminars are packed. On a Saturday afternoon at the end of July about 80 people, mostly retirees, crammed into a room in downtown Seoul to hear cable broadcaster MBN Gold stock analyst Kim Sung-nam give his advice on the country’s markets. The bottom line: After years of underperformance, it is time to buy.

“It has been a Korea discount situation and there are no other risks left to emerge,” Mr. Kim told the overflow crowd, some of whom were sitting on the floor and window sills.

Part of the reason for the current bullishness is that, after years of market doldrums, Korean stocks look relatively cheap. After an upheaval earlier in the year, the government is stable and growth is strong, particularly for exports.

Interest from local investors is increasingly important, as foreign investors have started pulling back. After piling $7.7 billion into the South Korean equity markets for the first six months of the year, foreigners have yanked out a total of $995 million since the beginning of July, according to the Institute of International Finance.

Ms. Park, the investor, lost money during the financial crisis of 2007 and 2008. But now, she says she is making enough to expand her business and treat co-workers to dinner.

Ms. Park said she held off on trading during Wednesday’s downturn. South Korean “investors know from experience that geopolitical risks don’t play for long,” she said.

Kim Sung-woo, who quit his job as a software developer to become a full-time stock investor last year, said his only concern about the escalating rhetoric from North Korea and the U.S. is that it will spook foreign investors who have flooded into South Korean stocks this year. South Koreans are “used to it,” he said.


https://www.wsj.com/articles/north-korea-risk-is-an-investment-opportunity-why-south-koreas-markets-are-booming-1502282093



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