Kim Jong Il died on December 19, 2011. The dictator of the nation of North Korea was the leader of the repressive government that threatened the stability of the area with continuing skirmishes with its neighbor South Korea, and its pursuit of nuclear weapons.
South Korea is distinguished from its neighbor to the north by many things, but financially, it promotes private ownership of companies and allows trading of company shares on a regulated stock market, the Korea Stock Exchange, abbreviated KOSPI.
There is some uncertainty about the leadership for North Korea, although indications are that it will fall to Kim Jong Il’s son, Kim Jong Un, to take command of the nation.
Reaction of the Korean Stock Market
South Korea will be the country with the biggest concern outside of North Korea to these developments. In reaction, the KOSPI dropped 3.4% in the day following the announcement. This continued a downtrend trend, where the KOSPI has lost 12.1% during the last year.
Is There Opportunity in the Korean Stock Market?
This is the time when investors have to determine if there is opportunity to purchase investments that may benefit from a return to stability in Korea. Kim Jong Il was a known factor. Little is known about his son, and how much authority the strong military will allow him to exercise.
If stability returns to the region, it is likely that the market will at least recover the one day drop, and if relations with its neighbor improve because of the change in leadership, it is possible the KOSPI may change its overall direction. Peace is likely to improve the overall market, as more of the economy can be dedicated to productive rather than military concerns.
How to Invest in the Korea Stock Market
Most individuals in western countries will find it hard to invest directly in Korean companies, but there are number of investment vehicles that have direct exposure to Korean stocks.
- iShares MSCI South Korea Index (EWY) is an ETF that tracks the Korean stock index and is heavily traded.
- IQ South Korea Small Cap ETF (SKOR) is another, much less traded vehicle to invest in the Korean stock market
- Korea Electric Power Corp is a publicly traded stock available to US investors
- Korea Equity Fund (KEF) and the Korea Fund (KF) are closed end mutual funds that are publicly traded for western investors.
Investors may wish to wait until the political issues facing the Korean market are clearer in order to make a safer investment, but the present uncertainty offers an opportunity for those willing to speculate. Investing when things look the most uncertain can provide the biggest profits.
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