On April 27, the world’s attention turned to the DMZ on the Korean peninsula where the respective leaders for South and North Korea -- Moon Jae-in and Kim Jong-Un -- met for their historic inter-Korea summit. The whole affair appeared impeccably choreographed, starting with the initial contact on the demarcation line, the handshake, and Kim’s first steps into the southern territory, the first such visit by a North Korean leader. Even the impromptu invitation from Kim to Moon to take his own brief step onto northern soil appeared to be part of a carefully orchestrated script. Moon happily obliged, and the summit was on well on its way.
Over the next 10 hours or so, the two leaders discussed, among others, the North Korean nuclear weapons program, the denuclearization of the Korean peninsula, peace establishment, and the general improvement of inter-Korean relations for their mutual benefit. The mood could not have been any more positive and joyous. By and large the majority of South Koreans embraced the feel-good moment.
What followed was also a slew of positive reports on the potential impact to the financial markets. Specifically, analysts have opined that the summit generally opens the way for a vastly improved and favorable investment environment (i.e. multiple expansion, easing of the ‘Korea discount’ etc.), and that investors should take a closer look at stocks that may benefit from any economic cooperation between the two nations. In fact, stocks that were deemed or speculated to be beneficiaries of North-South cooperation have recently seen a sharp pick up in margin loans. Are we indeed embarking on a new era with golden investment opportunities? Regrettably, the reality is neither so simple nor exhilarating.
The point is, there are many moving parts involving different parties with different and often conflicting motives. In some cases, we do not even know what those motives are. And so while the mood has improved markedly in recent weeks, it is still the case that we are largely witnessing an unfolding of events marked by uncertainty. Much will need to be hashed out during the upcoming US-North Korea summit (if it materializes at all) and indeed the devil will be in the details. Any prudent investor must take note of this and refrain from taking decisions which are driven either by emotional impulse or unfounded optimism rather than a rigorous assessment of potential verifiable outcomes. The cornerstone of sound investment would be understanding how factors impacting the financial market (or a particular security or asset class) change and evolve. But these must captured and analyzed with the underlying fundamentals as its pillar. One might very well argue that what we have witnessed in the past few weeks represents this very kind of change, but the truth is they do not yet help us fine-tune our view with realistic projections. Speculation is not the same as considered projections based on analysis. Any substantive change in opinion regarding the investment case for Korean assets should wait until further details from the upcoming dialogues. For now, those details still sit in a black box. 【The contributions from outside analysts are unrelated to the views of the publisher. They have been contributed in English and the wordings have been mildly edited.】
By Country Head for Fidelity International in Korea, Joon Kwun
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