Global Equity Research Global INVESTMENT STRATEGY & MACRO North Korea: Through A Glass Geopolitics Darkly* Industry Overview An "Issues Which Keep Me Awake At Night" Special Report KEY JUDGMENTS “The only predictable thing about the Kim regime is its unpredictability.” The Economist, 29 May 2010 ! The sinking of the South Korean corvette, the Cheonan, has been a sharp reminder to Alastair Newton markets – which had for some years been relatively muted in the face of rising tensions +44 20 7102 3940 on the Korean peninsula – that regional stability cannot be taken for granted.
[email protected] NI plc, London ! We believe that there are several possible reasons for North Korea’s recent “bad behaviour”, not least South Korea’s hosting of the G20 summit in November, and that Young Sun Kwon 852 25367430 at least the majority of those reasons are unlikely to ease soon.
[email protected] NIHK, Hong Kong ! However, we think it probable that tensions will ease somewhat shortly, albeit with relations between the two Koreas remaining very volatile. ! More widely, if the six-party talks resume – and we believe they may as China in particular looks to keep Pyongyang in check without risking regime collapse – we are doubtful that North Korea will be prepared to make and/or deliver on meaningful concessions in response to the demands of the international community. ! Whether the six-party talks resume or not, Beijing has a careful balancing act to sustain over North Korea given the – in our view – already greater and still growing Analyst Certification importance of China’s bilateral relations with both the US and South Korea.