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Historical summit highlights stocks related to inter-Korean businesses

With drummed up expectations for a more stable Korean Peninsula upon the inter-Korean summit on Friday, stocks of South Korean firms related to cross-border businesses have seen sharp gains.

The firms are associated with the inter-Korean business initiative pledged by South Korean President Moon Jae-in. 

Named “New Economic Map of the Korean Peninsula,” it contains plans to jointly develop areas across the peninsula, including Kumgangsan, Kaesong industrial park and the Korean Demilitarized Zone in the borderland, as well as ways to draw private investment for such development.

A white paper of the initiative was published in August 2017 by the National Planning and Advisory Committee, or the de facto transition committee for President Moon who rose to power in May 2017.

So-called “inter-Korean business cooperation-themed stocks” have maintained the uptrend, partly on the back of their track record in inter-Korean business cooperation.

Hyundai Merchant Marine, formerly involved in building now-defunct cultural parks at Kumgangsan, jumped nearly 15 percent in a month from March 23 to Wednesday. Over the cited period, Eehwa Construction, a local builder that owns land near the DMZ, surged over 50 percent, while Good People, an outfit maker that had a production line at Kaesong industrial park, soared 77 percent.

However, past historic events representing a thaw in inter-Korean relations, like the previous two inter-Korean summits, suggested that the market performance of such stocks was likely to be short-lived.

After the first inter-Korean summit in 2000, infrastructure maker Hyundai Engineering dropped to 2,875 won ($2.7) in August 2000, after approaching 6,000 won two months prior. In 2007, when the second summit took place, jewelry maker J.Estina fell to 1,815 won, after peaking at some 5,000 won two months prior.

Market watchers took a cautious stance on such firms’ heightening volatility.

“As the recent series of events is highly political, we are wary of the overly optimistic approach in investment strategies,” wrote Ahn Young-jin, an analyst at SK Securities, in a recent note.

By Son Ji-hyoung