For Jung Jae-hoon, a 37-year-old day trader in South Korea, the botched Trump-Kim summit was a success: The volatility that rattled the market helped him earn a nice profit.
Minutes before the market closed on Feb. 28, so-called peace stocks -- a group of companies that stand to benefit from increased economic ties with North Korea -- started to plunge on bets that U.S. President Donald Trump and Kim Jong Un would fail to reach an agreement at their Hanoi summit.
Jung seized the opportunity and bought shares in the group, adding some more the next trading day and selling them as they rebounded. In total, he invested about US$300,000 and made as much as 10 per cent from his bets.
“It’s just like the cryptocurrency market,” he said in a phone interview from Ulsan, a southern portal city in South Korea. “There are at least 100 stocks known as peace stocks. They are mostly tiny, penny stocks. Many individual investors just trade peace stocks with little information on the issue, hoping for once-in-a-lifetime return.”
The shares typically move on speculation for business with North Korea. Whenever there is increased newsflow about the relationship with the reclusive regime -- such as the Trump-Kim gathering last month -- volatility and volume tend to surge.
That’s just what happened with some of the biggest peace stocks. Trading in Hyundai Elevator Co., which holds a stake in a company that has the right to develop a tourism business in North Korea, surged to levels not seen since May of last year, data compiled by Bloomberg show.
Train maker Hyundai Rotem Co. was the second-most bought stock among retail investors over the past year. Hyundai Elevator and Hyundai Engineering & Construction Co. were also among the top 10, according to the data.
In addition to Hyundai Elevator, Jung traded shares including Ananti Inc., a resort operator that counts U.S. investor Jim Rogers as an external director, and Good People Co., which until 2016 ran a factory in North Korea’s Gaeseong Industrial Complex. After selling peace stocks, he then went with the opposite bet, adding weapons makers such as Hanwha Aerospace Co., he said.
For owners of peace stocks, it’s been a roller-coaster ride. When the United Nations imposed additional sanctions against North Korea back in August 2017, the regime responded by threatening to attack a U.S. base in Guam and launched of a missile. That boosted defense shares and tanked peace stocks.
The mood changed in February 2018, when Kim’s sister and a series of high-ranking North Korean officials visited the South for the Winter Olympics, where some North Korean athletes participated. The positive events that followed -- the historic summit between South Korean President Moon Jae-in and Kim in April, the demolition of North Korea’s nuclear test site in May, and the first summit between Trump and Kim in June -- boosted hopes for peace. That was enough to give traders other reasons to buy, while the broader market sank with chipmakers last year.
“Retail investors have been into peace stocks as there’s been a lack of themes to give a boost to South Korea’s stock market since last year,” said You Seung-Min, chief strategist at Samsung Securities Co. “While it is uncertain whether the nuclear negotiations with North Korea will succeed or not, volatility for peace stocks will stay high depending on the media reports on the process.”
--With assistance from Heesu Lee