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TheStreet Open House

Infant Foreign Ventures at Risk if North Korea Gets Too Angry

Stocks in this article: HYMLF PKX

The place feels vaguely like China about 30 years ago when foreign companies were getting a feel for what it took to make or sell stuff there.

But the investors in North Korea barely have a toehold today. Some risk being ostracized in their home countries for engaging in the totalitarian regime. Others face business losses from meddling by North Korean authorities, says Leonid Petrov, Korean studies professor at the University of Sydney.

Some of the prime examples are South Korean. Hyundai Asan, part of Hyundai Motor (HYMLF), invests in a North Korean resort, railway construction and an industrial park. But Korean media reports say the north confiscated Hyundai Asan property in the Mt. Kumgang resort area after the shooting death of a tourist in 2008.

Other South Korean firms are waiting around who knows how long for Seoul to lift a 2010 ban on trade (except in one area near the demilitarized zone). At stake are mineral resources worth $6.1 billion, according to an East Asia Forum report last year. Most of the Korean Peninsula's minerals are in the north.

Companies such as NYSE-listed Pohang Iron and Steel, aka POSCO (PKX - Get Report), which mines iron ore, stand to gain from that deal. POSCO share prices are stable, though below record 2008 highs.

Chinese-invested firms are picking up where South Korean investors cannot go, according to a 2011 report by the U.S.-Korea Institute at SAIS. Hong Kong-listed, miner MMG (1208.HK) is looking for resources in North Korea, the report says. Also cited among the 138 Chinese ventures in North Korea is Nanjing Panda Electronics Co. (553.HK), one of China's oldest television equipment makers.

China's lead more than makes sense. Not only does Beijing temper its rebukes against Pyongyang's hardware tests, it also gives food and fuel aid to its Communist neighbor, which faces industrial sloth without energy and periodic public hunger without the free meals. China is not going to cut trade or produce what the Institute report refers to as "ideological exports."

Companies from other countries are also sniffing around at the iron gates. Some private operators in the cottage travel industry are already seeing profits as about 70,000 foreigners visited the country in the year ending in November, Petrov says. If their governments stick with just the standard pretend-to-be-outraged reactions, nothing too fiery or threatening, to North Korea's military hardware tests, they might see eventual deals with Pyongyang and a boost in share prices.

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