How to trade on the Korea conflict (EWY)

avatar By: IS
Date posted: 11.30.2010 (5:00 am) | Write a Comment  (2 Comments)

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If the North commits any additional provocations against the South, we will make sure that it pays a dear price without fail,” – South Korea President Lee Myung-bak

If you have been living on another planet, I can tell you right now that things are spinning out of control in the Korean peninsula since last week’s breakout. You can read more detailed summaries on websites like the New York Times but one thing that is easy to find out is that there is a lot of tension right now as the US and South Korea have initiated more preparation drills… preparing for what? A possible war with North Korea. Obviously, there are a lot of things to consider when thinking about what a military conflict between these countries would mean. It is a very delicate situation for quite a few reasons:

-North Korea has one of the largest militaries in the world
-It is within striking distance of Seoul and other huge Korean cities
-North Korea has some nuclear capabilities although it’s unclear how much
-The US has an alliance with South Korea and will be heavily involved if things derail
-China is very much involved for many different reasons (relationship with North Korea, physical proximity, growing world power, etc)
-Korea is one of the more important economies in the world

How bad could things get? Very bad. This is serious and unfortunately, it’s impossible to assume that North Korea’s leader Kim Jong Il is smart enough to avoid letting this conflict go too far.

Here are some of the investments that you should consider using

-South Korea ETF’s

No doubt, the South Korean ETF’s will be very volatile as the crisis goes on and there are certainly opportunities to do well. Just take a look at the chart from the past few days:

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Unfortunately, there are no ETF’s on the South Korean Won at the moment as that could have been another very interesting play on the crisis.

-China ETF’s

China has been trying to establish itself as a world leader and having a crisis next to home is a threat. There is no doubt that China will want to have a major say on this crisis and if it ever exploded, it would have consequences on China and on its place in the world.

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-Nuclear Energy ETF’s

It’s unclear how advanced North Korea’s capabilities are but that they have been working on nuclear technology for over a decade now and if ever this conflict did go nuclear, it would have profound impacts on the global landscape.

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-Gold ETF’s

We have been discussing gold over and over in recent weeks and months but that is because it is a hedge for inflation and for uncertainty and both are scaring investors around the world at the moment. Chances are good that an escalation of a conflict in the Korean peninsula would create a spike in the price of gold. Would it be enough to bring gold to $3000?

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2 Comments

  1. Comment by Mike L. — December 1, 2010 @ 1:17 pm
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    I’m not naive; I know people can and will trade on the misfortune of others. I don’t look at Phillip Morris and stop considering it because they are a tobacco company.

    Having been to South Korea, though, and knowing how close Seoul’s millions of inhabitants are to North Korea, I can’t even begin to think of how I could profit from the potential for millions of casualties. For me this goes too far.

  2. Comment by IS — December 1, 2010 @ 5:29 pm
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    @ Mike L. – I understand your point but I don’t think it’s likely that such a thing will happen. No matter how peacefully this ends, there are still trading possibilities. But yes, obviously, hoping for a good ending.

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