How to Trade on News of North Korean Nuclear Talks

Hopes of an eventual reconciliation between North Korea and South Korea were given new life after envoys from the two countries met to discuss North Korea ending its nuclear arms program. The last round of 6 nation talks between the two Koreas, the United States, China, Russia and Japan ended in 2009 after North Korea walked out of the negotiations. After the talks broke down, North Korea alarmed much of the world when it conducted a nuclear test. Tensions between the two Koreas escalated further last year after a South Korean naval ship was destroyed. South Korea blamed the sinking of its warship on North Korea but the North denied responsibility for the incident. Later in the year, North Korea shelled a South Korean island, resulting in four deaths. Although the talks between the two Korean envoys could be seen as progress, the two sides are still far apart on what it will take to even get back to the bargaining table. South Korea wants the North to halt its nuclear arms program and take responsibility for last year's attacks. On the other hand, North Korea wants the talks to resume before it will consider halting its nuclear program or making any other concessions. South Korean officials have long grown weary of North Korea's tactics. North Korea has a tendency to fuel tensions in an effort to win economic concessions from South Korea and then walk away from negotiations if it is openly criticized for its actions. With North Korea once again demanding that the South make concessions before North Korea will even negotiate, the South Koreans might have decided that they've had enough and refuse to be the first to concede in what has become a high stakes game of chicken. If the recent talks between the two Koreas are a sign that North Korea might seriously consider halting its nuclear arms program in order to achieve better political and economic relations with South Korea, the South Korean stock market could climb higher. South Korea's stock market always trades under the cloud of possible conflict with the country's erratic northern neighbor. The stock market usually falls when the situation on the Korean peninsula becomes more tense. If North and South Korea were on a path to peace and reconciliation, then South Korean stocks like SK Telecom SKM, POSCO PKX and LG Display LPL could post significant gains. These companies could benefit from reduced political tension, an influx of cheap labor and the opening up of a new trading partner. Investors who prefer the risk reduction provided by investing in a larger selection of South Korean stocks should consider the iShares MSCI South Korea Index EWY. If reduced political tensions send South Korean stock prices up, this ETF will move higher along with them.