Asian markets and the Trump-Kim Summit

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John Park, chief investment officer for Korea investments at Barings, oversees the firm’s Korea fund strategies.

If the result of the summit is North Korea taking concrete steps to open its economy, Park expects infrastructure-related companies in South Korea to benefit the most.

“Infrastructure facilities, provided by construction, utility, and telecommunication sectors, will be most required in the Northern peninsula. It is a long-term project,” he said. “In fact, many companies from the South will want to participate in the new area of growth.”

Another sector that could be a beneficiary is manufacturing. “Factories of manufacturers would be able to recruit many low-cost labourers [from the North]. They would therefore be able to streamline their cost structure.”

However, he noted that it depends on the resources North Korea can use to revive its economy, for example, what the US and international organisations will offer in terms of trade and assistance.

Historically, geopolitical risk in the Korean peninsula has only resulted in temporary and limited negative impact on the South Korean market, he said. But he noted that the risk has imposed “a certain discount factor” on the market, compared to the other markets globally.

If the two leaders remain on good terms, the discount factor could slowly go away, possibly raising valuations.

In any case, he is optimistic that the Trump-Kim meeting will bring the two countries some high-level agreements.

“There has been various forms of dialogue among high-ranking officials of South and North Korea after each political confrontation. But this time [the US-North Korea meeting] is different.”

He said a broad agenda on further economic support is expected in the aftermath of the summit. The leaders will however move the process along very slowly.

“Holding a meeting between the US and North Korea is good news. But it is just a primary step. Furthermore, it is too early to talk about a concrete plan on unification between South and North Korea,” he noted.

A possible step to the gradual opening of North Korea would be setting up more joint economic zones, he suggested.

Kaesong, which is situated on the west side of the North-South Korea border, is the only joint economic zone that promotes inter-Korea trade. However, the operation of zone has been suspended following international sanctions against North Korea in 2016.

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