A North Korean Investment Opportunity

Investing in the BRICs (Brazil, Russia, India and China) is so yesteryear. Myanmar and Laos are, like, so yesterday. No, the real investment opportunity for your financial future lies in North Korea.

Ok, so before you take the next Air Kroyo plane to Pyongyang with a suitcase full of dollars, there are some qualifying statements you should read. First of all, North Korea’s official airline is known to be the world’s worst. Its website, also known to be the world’s worst website, seems to have disappeared.

More importantly, there’s no reason to make the trip. Not just because you’ll probably be sent straight back home again upon arrival, without your suitcase full of dollars. Believe it or not, you can make money off North Korea’s coming economic boom from the comfort of wherever you are now.

‘North Korea’s coming economic boom?’ we hear you ask. Don’t worry, we haven’t turned commie. In fact, it’s the failure of the collectivist system that should have investors excited. Here’s the big hint. It’s the German stock market going back to 1990 (as far back as we could find).

Germany’s Stock Index, the DAX

Germany's Stock Index, the DAX
Source: Yahoo Finance
Notice what happened after the reunification of Germany in 1989. The German stock market rose 400% over the next 10 years. That’s 50% more than America’s S&P500 index and double the performance of the UK’s FTSE. Today, the gaps are even greater.

You’d think that a country would struggle, having to absorb an economically stunted region. Sure enough, German economic growth wasn’t too flash over the period.

In fact, East Germany’s economy was put through the wringer of international competition. It came out looking like the mincemeat that Australians put in so called ‘sausage rolls’. A sausage roll without a sausage…?

Anyway, Germany’s poor GDP growth didn’t stop the stock market from going gangbusters. It sort of makes sense if you believe in creative destruction – the idea that new ideas destroy old ones as they flourish.

German economic growth might not have been great because much of what made up GDP in East Germany had to be destroyed to make way for economic growth, capitalism style. Think of it as quality over quantity. Serving the customer instead of the state.

What does that have to do with North Korea? Well, Korea was split in two, with one side going communist and the other capitalist. The same divergence as in Germany happened, with the capitalist south of the Korean peninsula now a ‘Wirtschaftswunder’ (German economic miracle) of its own. Things in the north aren’t so good. Although they did recently launch a rocket. Woohoo!

Just like in the Soviet Union, the economic planners in North Korea are discovering that agricultural collectivism is especially dangerous. People are starving because the state farms aren’t producing enough food.

The best way to explain this actually comes from America. There, the first colonialists started out as collectivists. Everything was shared and they were all in it together. Pretty soon, they found out that means starving together because hard work had no reward.

So they introduced private property rights. Each person got their own land. Suddenly everyone worked hard to provide for themselves, and there was enough food to go around.

The North Koreans are figuring this out, according to media reports. Just like in the Soviet Union many years ago, farms are the first part of the economy on the privatisation agenda. Food is just too important to leave to the government.

But the thing is, once people get a taste of freedom (pun intended) they tend to want more of it. If a farmer can grow his own food on his own plot of land, why can’t the butcher, the baker and the candle stick maker go solo instead of serving the state?

They can if they give their economic dictators a kick in the pants. So are we predicting a revolution in North Korea? You betcha. When? No idea.

The East Germans probably had it much easier than the North Koreans will, when it comes to reunification. North Korea’s government might not go without a fight. But the point is that the failure of North Korea’s collectivism is inevitable. When it happens, a whole country could open up to one of the most advanced capitalist nations in the world – South Korea.

Infrastructure will have to be built, labour costs will be cheap, and consumer markets will open up. Not to mention spreading K-Pop. All this would put companies on the Korean exchange in a brilliant position to benefit.

So what’s the link between you and South Korea? That is what we’re working on right now for our subscribers at the Money for Life Letter. It’s surprisingly simple.

The angle we can take here in the Markets and Money is unfortunately not quite so positive. You see, when it comes to economic growth, it doesn’t matter how capitalist or collectivist you are. What matters is how you’re changing – are you becoming more capitalist or collectivist.

The answer for Australia is that we’re becoming more collectivist. We have the government to tell us which industries should be supported and which should be taxed. Which personal choices are prohibited and which are supported.

What our children should learn and what they should be protected from. All this has undermined what gives an economy the dynamism to grow. We are turning into North Korea, not South Korea.

So we’re in for a rough time. Greg Canavan recently recorded a video which does a brilliant job of explaining just how our very own economic crisis will play out. At least the first part of the video is good. Then he reveals where his deeply misguided State of Origin rugby allegiances lie. Luckily, his financial predictions have a better track record than his sporting ones.


Nick Hubble

for Markets and Money

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Nick Hubble
Nick Hubble is a feature editor of Markets and Money and editor of The Money for Life Letter. Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like. He then brought his youthful enthusiasm and energy to Port Phillip Publishing, where, instead of telling everyone about Markets and Money, he started writing for it. To follow Nick's financial world view more closely you can you can subscribe to Markets and Money for free here. If you’re already a Markets and Money subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Markets and Money emails.

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