A United Korea and possible investment opportunities

December 19, 2011

Just when you think global financial markets are gradually winding down before Christmas, news of North Korean leader Kim Jong-il’s death hits the world.

Investors are reacting calmly, with the safe-haven dollar steady and world stocks down slightly. But what are the investment implications of North Korean uncertainty?

It was Goldman Sachs back in 2009 that said GDP of a united Korea could exceed that of France, Germany and possibly Japan in 30-40 years, should the growth potential of North Korea — notably its rich mineral wealth — be realised. (Link here, courtesy of the North Korean Economy Watch)

While the report is slightly over two years old, the economic state of the Stalinist state is considered to have progressed little since. And its rich human capital, as well as abundant mineral resources (which Goldman valued at the time at around 140 times 2008 GDP) remain untapped.

There have been some investment funds looking at this very mineral resources potential — one of which is a London-based fund Chosun Development Fund. Set up in 2009 to invest $50 million in North Korea, little is known of this privately held fund — its website says “This site is currently being improved and updated!”.

But its fund presentation outlines the country’s potential: “(The fund focuses on) the regeneration of the DPRK’s extractive industries and targeted investment to get product to export markets. The country has large deposits of gold, coal, zinc, magnesite, iron ore, copper, cobalt, nickel, uranium, fluorspar, tungsten and other minerals. Mining industries performed reasonably well before the DPRK’s economic contraction of the 1990s.”

Investors may finally be witnessing a new frontier market being born.


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