Global Investing

Discovering Pyongyang’s view with a North Korean diplomat

Last week I went to a very unique session on North Korea which featured a rare appearance of a North Korean diplomat, at London-based policy institute Chatham House.

A wide range of topics — from North-South relations, human rights, a potential nuclear test to a new generation of young diplomats — were discussed, but  under the so-called Chatham House rules (meaning I cannot reveal who said what).

Participants discussed how Pyongyang’s relationship with South Korea and the United States has been deteriorating as both sides exchange some pretty acrid verbal attacks. For instance earlier this month North Korea’s official KCNA called  South Korean President Park Geun-hye a “political prostitute” while it described U.S. President Barack Obama as a “wicked black monkey”.  South Korean Ministry of Defence spokesman Kim Min-seok for his part, had retorted that North Korea wasn’t a real country and that it existed solely to prop up a single person.

The North’s argument is that all those abusive comments were made by members of the North Korean public and were just reported by the KCNA.

The country has been defensive over allegations of human rights abuses in North Korea, though it admits not all is perfect in the country. This stance perhaps explains a recent move by Pyongyang to agree to review some of the U.N. recommendations to improve human rights in the country.

A guide to North Korean “elections” – due in March

Investors are bracing themselves this year for elections in all of “Fragile Five” countries and a number of other emerging nations that are adding political concerns to those economies already vulnerable to capital flight risks.

Perhaps a lesser-known political event that is coming up in 2014 is in North Korea, which will hold “elections” for its parliament on March 9.

The polls will elect members of the country’s rubber-stamping Supreme People’s Assembly for the first time since 2009 and also for the first time since Kim Jong-Un — the third generation of his family to rule the Stalinist state — took leadership in 2011.

Not for the faint-hearted — buying N.Korea debt

Distressed debt broker Exotix, which specialises in the kind of bonds most of us are too risk-averse to touch, recommends buying North Korean defaulted debt following the death of Kim Jong-il.

Stuart Culverhouse, chief economist at Exotix, says the debt, which matures in 2020 but could be rolled over if holders agree, could reach 20-22 cents on the dollar near-term, from 14-18 now.

Risk-hungry investors buy rock-bottom defaulted debt  in the hope that terms of any settlement with creditors will be worth the investment.

A United Korea and possible investment opportunities

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)

Asia’s path to prosperity and investment opportunities

Investors have been worried about the effect of a Chinese slowdown on Asian emerging markets, but the long-term growth story is still intact, according to specialist investment manager Matthews Asia.

Consumption is one of the key areas of growth. Illustrating the divergence of Asian economies and their path to prosperity, here’s an interesting chart from Matthews which shows the standard of living of various Asian countries, expressed by applying Geary-Khamis dollars — the concept of international dollars based on purchasing power parity — to today’s Japan.

For example, the living standards of North Korea and Mongolia are at around that of Japan in the 1890s — when Japan and China fought in the Sino-Japanese war and Wilhelm Rontgen discovered x-rays — while China’s is equivalent of an early 1970s Japan and Malaysia and Thailand are a step ahead at the mid-1970s.

Olympic medal winners — and economies — dissected

The Olympic medals have all been handed out and the athletes are on their way home.  Which countries surpassed expectations and which ones did worse than expected? And did this have anything to do with the state of their economies?

An extensive Goldman Sachs report entitled Olympics and Economics  (a regular feature before each Olympic Games) predicted before the Games kicked off that the United States would top the tally with 36 gold medals. It also said the top 10 would include five G7 countries (the United States, Great Britain, France, Germany and Italy), two BRICs (China and Russia), one of the developing countries it dubs Next-11  (South Korea), and one additional developed and emerging market. These would be Australia and Ukraine, it said.

Close enough, except that Hungary took the place of Ukraine as the emerging economy in the Top 10 and the United States actually took 46 gold medals — more than Goldman had predicted.

RIC (without the B) carry extreme risks, index says

They may be among the only economies left to save the world — or at least the euro zone – but Russia, India and China are extremely risky bets, according to an economic, social and governance scale compiled by risk consultancy Maplecroft.

The company’s ESG Atlas and Risk Calculator allows investors to choose across ESG issues from 47 risk indices, to make country scorecards.

On that basis, China and India are among 38 countries classified as “extreme risk” in one or more categories. Among those, India is in the bottom 10 for environmental issues.

from The Great Debate:

What is the best strategy against Chinese cyberattacks?

By Ian Bremmer
The views expressed are his own.

All eyes should be peeled on China, but not for the reason you think. While the biggest structural risk right now is global rebalancing, especially between China and the U.S., there is another important threat from China: cyberwars. Cyberattacks are one of the biggest fat tails (along with climate and North Korea).

It’s no surprise that the latest Google hack attack came from China. The presumption is that the vast majority of cyber attacks hitting the U.S. are coming from the Chinese government. It’s very hard to know where threats are originating – country-wise and/or person-wise -- because it’s very difficult to go back and figure out the paper trail. But at a minimum, there is an environment in China that tolerates cyber attacks.

Proprietary information around technologies – gaining profit shares, increasing revenues – allows a country to be much more economically competitive. China has leverage because everyone wants to get into China. If you want to make something in their country, you have to share the technology.

The final frontier market

As a fallout in emerging markets — once hailed as a safe-haven from the global financial crisis — gathers pace, asset managers are scrambling for newer markets.

What about North Korea? The Stalinist country boasts large untapped natural resources with deposits of gold, coal, zinc and other minerals. It has virtually no capital markets and its banks are all state-owned — making it a true safe haven from the global financial crisis.

The communist state has a good logistics route. It has borders with China, Russia and of course South Korea and a short sea route to Japan. South Korean firms such as Hyundai and LG already invest in the North.

Power failures shine light on India’s woes

Half of India’s 1.2 billion people have been without power today,  bringing transport, factories and offices to a grinding halt for the second day in a row and sparking rage amongst the sweltering population. That’s embarrassing enough for a country that prides itself as  a member of the BRIC quartet of big emerging powerhouses along with Brazil, Russia and China.  But the outages will also hit economic growth which is already at 10-year lows. And the power failures, highlighting India’s woeful infrastructure, bode poorly for the government’s plans to step up manufacturing and lure more foreign companies to the factory sector.

India urgently needs to increase production and exports of manufactured goods. After all, software or pharma exports do not create jobs for a huge and largely unskilled population. India should be making and selling toys, clothes, shoes –- the things that helped lift hundreds of millions of Chinese, Taiwanese and Koreans  out of poverty and fuelled the current account surpluses in these countries.  At present, manufacturing provides less than 16 percent of India’s gross domestic product (30 percent in China, 25 percent in South Korea and Taiwan)  but the government wants to raise that to 26 percent by 2022.  Trade minister Anand Sharma, in London last week, for a pre-Olympics conference, was eloquent on the plan to boost manufacturing exports to plug the current account gap:

In coming decades, India will be transformed into a major manufacturing hub of the world.