G. Paul Matthews Sees Riches in Asia

I suspect that although the world's attention is focused the geopolitical issue, the most important issue is whether the recovery that Korea has been enjoying over the last three years is soundly based. We believe that this time around it truly is.

The geopolitical issues will have an impact on the short-term levels of the market, and the most vulnerable component of that is foreign ownership. Domestic investors have grown up with and lived with this threat on their immediate border their entire lives. They have become somewhat inured to this. It's very hard to convey how it feels to live in a city of 13 million people that's so close to a potential hot spot. It's only an hour away from the border and only two hours away from the capital. Here are 13 million people going about their lives in much the same way that we do. I don't think their investment decisions are going to be dramatically impacted by the political events as much as the way in which they live their lives.

In a short-term sense, I don't think the economy is going to be that impacted. If it drags out for a long period with rising levels of rhetoric from the U.S. and North Korea, in particular, then it clearly could have an impact on portfolio investment from foreign investors and on capital investment on the part of domestic corporations.

As far as portfolio sentiment is concerned among local investors, it's still only just started to recover from the economic crisis. The most important thing domestic investors (focus on) is how strong the economy will be in 2003 and 2004, and less so on the level of international anxiety over North Korea.

The big problem, of course, is that this is a final piece in the jigsaw puzzle of Asia's geopolitics and no one has the last pieces. They seems to be missing. This involves China's position, Japan's position, South Korea's position and, of course, the U.S. position. This is our last outpost in Asia and a home for 37,000 U.S. troops -- very well-placed strategically on what would be a direct border with China, should reunification occur. It's not a problem for which there is an obvious solution in diplomatic terms, but a diplomatic solution must be the top priority of all concerned.