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The most unlikely thing to happen in 2013 is North Korea opening a stock market. Ok, that's a bit of hyperbole as there are many things that are more unlikely. NK is perhaps one of the least developed countries in the world yet it sits next to some of the wealthiest (Japan and South Korea) as well as next to the world's dynamo (China). One has to wonder whether the Swiss education of the country's leader will encourage him to make North Korea to open the borders and to open up to outside investment. This is an interesting possibility that few are probably betting on. According to an article in Der Spiegel the economy may open up in 2013.
Whenever the son became leader we were not sure what to expect: more of the same or something different? It will take some time before we know for definite but I think the first surprise was the Christmas speech that spoke of bilateral agreements with their southern counterpart. This mere suggestion is a positive sign for hope that the country will open up and thus promote internal development. The missile testing and nuclear weapon development is unnecessary sabre rattling and may not lead to much more, it would surely be too costly (for reputation) to exercise such military prowess.
The recent trip by Google's Eric Schmidt correlates with the country moving in the right direction but it is hard to know what the purpose of the trip was about. It is a strange place to go on vacation and it would not surprise me if there was politics and or business meetings involved. At least that would be an obvious opportunity for the government to take advantage of. On top of that global news sources report that foreigners are now allowed to use mobile phones. A series of little steps will lead to something major, which could mean that North Korea is the growth story of the decade. The proviso there is the need to open themselves up to outside investment. Without that there will be little growth.
While the public messages over the festive season were what sparked my interest (plus Herr Schmidt's vacation) it turns out that I am slow(er) on the uptake than investor Jim Rogers. Back in October 2012 he was interviewed on Russia Today and said that he was excited by prospects in Myanmar and of North Korea. It is obvious to see why: a very undeveloped country with many problems has a lot of potential for growth. Investor's love growth, especially in a low-growth world like we see in most (all?) of the developed world.
According to the CIA's factbook, the official line from the intelligence agency is that they believe there will be an opening up of the economy under the leadership of Jong Un. They also note that the country frequently promotes a goal of being strong and prosperous, and for attracting foreign investment yet it doesn't provide the correct environment into which foreign investors will want to invest.
The blue-print for increased openness is probably the example set by China (this is my opinion but see Der Spiegel article below). If we look at the currency restrictions on the Renminbi, for example, we could believe that NK may follow a similar style of openness. One where trade is open, but only to neighbouring countries. In terms of a stock market it is likely to follow (messy) China's example by offering different classes of share depending upon whether one is a NK national or not. Unfortunately, Chinese equity markets is not wholly transparent and there are about 6 different share classes (including those listed in Hong Kong). I wouldn't recommend it but it would have been the most likely in my humble opinion....
Three days ago The Economist penned an article about the rise of "capitalists" (not Capitalism) in NK in the form of farmers doing cross-border trade with China. In doing so they have created a black market where advanced goods are brought in from China. Interesting times! The Economist - The new capitalists
There is, of course, Myanmar as another model to copy who have been through economic hardship but are now looking to grow. Marc Faber has been touting Myanmar for years although it isn't really a surprise that folk such as him are early to the table. However, according to news reports from January 2013 the NK government have enlisted the help of German's. That strikes a good first impression at least.
I'm researching this article as I write and I've just come across an article in Der Spiegel which states that the NK government want to open up this year. I have to say that I am surprised at the speed of this. While I was guessing China to be the blue-print North Korea is aiming for a bolder step by copying Vietnam. Der Spiegel - North Korea Enlists German Help to Prepare Economic Opening
For further reading I'd recommend the North Korean Economics Watch website.
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Last Updated (Monday, 11 February 2013 00:12)
