Jan. 17, 2003 — Mark Headley will leave for South Korea Saturday to visit corporate executives, and despite political tensions there he’s not nervous about making the trip.
Nor is Headley, who helps run the $189-million Matthews Korea Fund (MAKOX), worried about investing in that country.
Although North Korea’s recent moves to become a nuclear power hurt its southern neighbor’s stocks late last year, they have since recovered and remain attractive, money managers say.
The South Korean market, as measured in U.S. dollars, dropped about 13% in December after North Korea expelled U.N. nuclear inspectors as part of its effort to revive its nuclear weapons program. But the stocks are up 4.5% so far this year.
Domestic investors, who form the backbone of the South Korean market, have been largely unfazed by events over the last two months, observers say. That, they explain, is because the South has been subjected to potential challenges by Pyongyang before and is used to dealing with them.
“North Korea has been threatening to turn Seoul into a sea of fire for 50 years, and nobody in Seoul expects them to do that,” says Headley.
“Virtually anyone who’s been investing in Korea for any length of time has seen at least one of these crises before,” adds Nick Moakes, who oversees Asian investments for Merrill Lynch and helps manage the $110-million Merrill Lynch Dragon Fund/A (MADRX), which has about a third of its assets in South Korea.
The situation today is similar to the nuclear crisis of 1994, which ended peacefully when former President Jimmy Carter helped mediate a resolution. Under an agreement between the U.S. and North Korea, the communist state was required to shut down its nuclear facilities in return for energy and other economic aid.
Short-term selloffs resulting from periodic political strains in the two countries’ relationship tend to be used as buying opportunities by institutional investors, which in turn lifts prices, Moakes says.
Fund managers also believe the risks of war in the Korean peninsula are extremely low. They expect the nuclear problem to be resolved diplomatically.