North Korea Halts Nuclear Programs: Will Asian Stocks Benefit?
North Korean leader Kim Jong-un has agreed to suspend nuclear weapon tests, uranium enrichment, and firing of long-range missiles, reports North Korea's official news agency and the U.S. State Department. As part of the agreement, the United States has pledged to ship 240,000 tons of food aid to the impoverished nation.
The agreement also allows inspectors from the International Atomic Energy Agency to continue their oversight for the first time since their expulsion from the nation in 2006.
The negotiations represent a long-awaited milestone in the North Korea-United States relationship because it signals a willingness to enter into agreements that was not present under the late Kim Jong-il.
President Obama has called the steps "important, if not limited." Secretary of State Hillary Clinton has called the announcement a "modest first step in the right direction," adding that the U.S. will be closely watching North Korea's actions.
"North Korea has agreed in the past to halt its nuclear program only to back out, demanding more concessions or accusing the United States of reneging on its obligations," reports the New York Times.
The statement Tuesday from the North's official Korean Central News Agency appeared to give the country's leaders wiggle room again this time, saying that Pyongyang would carry out the agreement "as long as talks proceed fruitfully."
According to American officials, North Koreans insisted food aid be part of any agreement with the United States.
Business section: Investing ideas
Internationally, North Korea's suspension of nuclear activity is a sigh of relief. Neighboring nations including South Korea and Japan have long been ill at ease with the country's test missiles and nuclear capabilities. Tensions had only risen higher when Kim Jong-un took power, as some thought he would use military strength to establish his dominance.
South Korea's markets were heavily affected by concern that there would be a power struggle in the communist nation, and Kim Jong-un's lack of credentials added to the uncertainty.
In an appropriate response to military concerns, Bloomberg reported back in December that shares of companies that produce military supplies in South Korea rallied. Such winners included "Speco Co., a defense equipment manufacturer, Victek Co., which makes electronic warfare equipment, and Huneed Technologies, a military communications equipment manufacturer."
Now that war seems less likely and tensions are decreasing, which South Korean companies are feeling the benefits?
For ideas, we list the eight largest South Korean companies trading on the U.S. stock exchange. How do you think they will fare under Kim Jung-un's rule? (Click here to access free, interactive tools to analyze these ideas.)
1. KB Financial Group: Operates as a holding company for Kookmin Bank that provides various financial products and services to individuals, small and medium sized enterprises, and corporate customers in Korea. Market cap of $14.34B. This is a risky stock that is significantly more volatile than the overall market (beta = 2.07). The stock has lost 23.88% over the last year
2. LG Display Co. (NYS: LPL) : Engages in the manufacture and supply of thin film transistor liquid crystal displays (TFT-LCD) to original equipment manufacturers and multinational corporations primarily in Asia, the United States, and Europe. Market cap of $9.32B. The stock has lost 18.46% over the last year
3. MagnaChip Semiconductor: Designs and manufactures analog and mixed-signal semiconductor products for high-volume consumer applications. Market cap of $466.02M. Exhibiting strong upside momentum -- currently trading 5.43% above its SMA20, 28.03% above its SMA50, and 23.87% above its SMA200. The stock has had a good month, gaining 28.%
4. POSCO (NYS: PKX) : Engages in the manufacture and sale of steel products in South Korea and internationally. Market cap of $28.42B. The stock has lost 10.51% over the last year
5. Shinhan Financial Group Company Limited (NYS: SHG) : Provides financial products and services to corporations, governments, institutions, and individuals in Korea and internationally. Market cap of $18.50B. The stock has lost 6.91% over the last year
6. SK Telecom Co. (NYS: SKM) : Provides wireless telecommunications services using code division multiple access and wide-band CDMA technologies. Market cap of $9.34B. Offers a good dividend, and appears to have good liquidity to back it up -- dividend yield at 5.44%, current ratio at 1.43, and quick ratio at 1.41. The stock has lost 18.42% over the last year
7. Woori Finance Holdings Co. (NYS: WF) : Provides various banking and financial products and services in Korea. Market cap of $8.68B. This is a risky stock that is significantly more volatile than the overall market (beta = 2.19). The stock has lost 11.97% over the last year.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Rebecca Lipman does not own any of the shares mentioned above.
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