Stocks to Watch as the Two Koreas Potentially Negotiate a Peace

Back in September 2017, a war of words intensified between Donald Trump and North Korea.

Trump called Kim Jong-un a “Rocket Man” bent on a “suicide mission” with Kim calling Trump a “mentally deranged US dotard,” threatening to test an H-bomb over the Pacific.

All after Trump threatened to “totally destroy” North Korea in his speech before the U.N.

Trump also signed an executive order that would hit North Korea with travel and economic sanctions in an effort to cut off money flow to the country. The order gave the Treasury Department the authority to suspend all U.S. account access to any foreign bank that conducts any business tied to North Korea trade.

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Seven months later, the war of words, North Korea nuclear missile tests, and a 65-year war with South Korea appear to have come to an end.  In fact, North Korean leader reportedly told South Korean President Moon Jae-in that he would abandon nuclear ambitions if the U.S. agreed to formally end the Korean War and promise not to attack his country. 

Granted, skeptics have warned that North Korea has made similar pledges of denuclearization on many occasions, with little to not intention of abiding by them. 

However, according to The New York Times:

"North Korea has so far offered no timeline for dismantling its nuclear weapons and facilities. Nor has it clarified how it defines a “nuclear-free Korean Peninsula,” and especially whether that means a withdrawal or significant reconfiguration of American troops based in South Korea, as it has demanded before."

You may remember the commitment in the 1990s to give up its nuclear program and the destruction of a nuclear power cooling tower in 2008 as part of a similar promise.

Both didn’t work out as well as hoped. Perhaps things have changed, though.

In late April 2018, Kim and Moon signed a joint declaration recognizing a nuclear-free Korea.

One good thing that came out of it at the time was a rally in related Korean trades.

  • The Korea Fund (KF) rallied from $40.26 to $42
  • The iShares MSCI South Korea Capped ETF (EWY) ran from $73 to $76
  • The Direxion Daily South Korea Bull 3x Shares (KORU) jumped from $52 to $60

Companies that were also seen benefiting included fertilizer maker Namhae Chemical Corp, Hyundai Elevator Co. and cement makers including Sangyong Cement Industrial Co. and Hanil Cement Co, noted Bloomberg.  Even land-mine equipment companies are likely to benefit, as tensions between the two Koreas appear to cool. In fact, Firstec Company and Welcron Company both gained momentum.

While it has yet to be seen if the Koreas will truly become nuclear-free can happen, this is further proof that thematic trading can be profitable.

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