Asian markets and the Trump-Kim Summit

1234

Mark Baker, investment manager for emerging market debt at Aberdeen Standard Investments.

“In terms of normalisation of relations between the North and the South we’re not really thinking about reunification at this point,” Baker said.

He noted that in the immediate future potential opportunities arise in sectors such as construction and infrastructure.

“In some ways South Korea is almost like an island nation with the hard border to the North,” he said. In the event that relations are normalised and we see more economic cooperation, the country will be looking to build highway and rail links to China and the rest of the continent.

“We should certainly expect South Korea to want to get involved in infrastructure projects in the North,” Baker said. “South Korean firms would be also looking to participate in any buildout of industrial complexes and power generation facilities,” Baker said.

Should relations between the South and the North normalise, South Korean companies will be likely seeking access to the “organised, willing and cheap labour force” in the North, Baker said. “To begin with, we’d be talking about low-end manufacturing rather than the sort of tech manufacturing that South Korea has been outsourcing to places like Vietnam. “

While some people point out that North Korea is home to 25 million potential new consumers, Baker is more skeptical. “Given the very low GDP per capita and the stage of development really like no other country on earth, the consumer story is probably one for the [more distant] future,” he said.

One challenge for South Korea in the efforts to capitalise on the possible normalisation of relations would be the competition from North Korea’s other neighbour, China.

“China has been very active in funding and operating infrastructure projects in developing economies, in particular in Africa,” Baker said.

“China is facing its own issues with competitiveness in lower-end manufacturing as wages go up and the renminbi strengthens,” he added.  “I’m sure it will be very active in seeking out industrial manufacturing sector projects [in North Korea].”

1234