Kim creates short-term buying opportunityNorth Korea’s announcement that it will use its facilities at Yongbyon to enlarge its nuclear arsenal has set more than a few temples to throbbing. The site’s uranium enrichment plant and 5-megawatt graphite-rod reactor (disabled since the Democratic People’s Republic of Korea signed a disarmament accord in 2007) could each produce one or two weapons’ worth of fissile material a year, according to some estimates. This announcement marks the DPRK’s first admission that its uranium enrichment facility, whose existence was revealed to a group of visiting American analysts in 2010, will be used to build bombs.
My reaction: Buy South Korean stocks. According to Bloomberg reporting, rattled foreign investors dumped huge amounts of shares last month, both because of Kim Jong-un’s antics and the prospect of a weaker Japanese yen. This manufactured crisis is likely to pass.
Estimates of North Korea’s actual nuclear capabilities are a tangled ball of ifs, maybes and I-don’t-knows. It’s not clear, for example, how long it will take to restart the graphite reactor, whose cooling tower was blown up after it was shut down. The DPRK may not even follow through on its plans: It has a long history of bellicose pronouncements that have not resulted in Seoul being engulfed by a “sea of fire,” to press the F1 key of the Korean Central News Agency.
As a newly minted supremo, Kim has a predilection for tough talk. But these last few weeks have brought something of a leap tide: an unusual conjunction of tough United Nations sanctions, disapproval from his Chinese patrons, big military exercises between the U.S. and the Republic of Korea and, as Stephan Haggard of the Peterson Institute for International Economics, notes, major political meetings in Pyongyang - all occasions for a little extra swagger. Plus, maybe Kim was still fired up after partying with “the Worm.”
Kim’s goal remains regime survival, and if he can look tough in the process, so much the better. The U.S. has taken some prudent steps in response to his rhetoric but has wisely refrained from over-reacting. There is always the possibility of some kind of provocation. But this current sturm and drang may well ease without incident after the meetings and military exercises end. And then it’s back to the central problem of getting both sides back to the table under terms that each can politically accept.
By James Gibney
* A member of the Bloomberg View editorial board