Few developments can alter the landscape of an investment thesis as abruptly as the onset of armed conflict, and this week's unfortunate exchange of artillery fire between North and South Korea forces cautious Fools to reassess their exposure to the region.
My aim here is not to assess whether or not hostilities will continue or escalate on the Korean peninsula. Fools are encouraged to discuss their opinions on that important matter in the comments section below, but the purpose of this article is to remind folks that a truly successful investment thesis is likely to hold up to renewed scrutiny even when the broader landscape turns decidedly unfriendly.
With the iShares MSCI South Korea Index Fund (NYSE: EWY ) surging 3.7% in early trading Wednesday, much of Tuesday's sharp decline (5.4%) in this exchange-traded fund (representing major South Korean stocks) has quickly snapped back into strength. Near-term volatility could ensue as investors weigh their concerns over the conflict -- and especially if skirmishes persist -- but select South Korean companies continue to present compelling opportunities for long-term growth as a corollary to greater-Asia's red-hot boom.
Steelmaker POSCO (NYSE: PKX ) is not only my top pick among all South Korean stocks, but I believe the strategic importance of steel renders the company rather safe against destabilizing impacts of geopolitical strife. Meanwhile, the company's increasingly global footprint provides further assurance that heightened tensions at home won't stymie the company's outlook.
Building upon momentum from prior inroads into places like India and Vietnam, POSCO recently signed a key memorandum with Russian steelmaker Mechel (NYSE: MTL ) . The document outlines a "comprehensive partnership" between the two competitors and gives POSCO a strategic foothold in Russian deposits of raw materials essential for the steelmaking process.
Russia boasts the world's leading portfolio of iron ore deposits -- and the second-largest supply of coal -- much of which is located close to the Korean peninsula in eastern Siberia. POSCO will assist Mechel with the expansion and modernization of port facilities, and assist with the development of mines like Mechel's Elga coal field. At 2.2 billion tons, this one deposit equates to more than 78% of Massey Energy's (NYSE: MEE ) entire coal reserves. While POSCO's rival ArcelorMittal (NYSE: MT ) looked West to consider making a play for Massey, POSCO's attention is focused in the East, where the world's new hubs of economic strength are centered.
With coal miner Peabody Energy (NYSE: BTU ) forecasting a 30% increase in global steel consumption over the next five years, I find the outlook for a strategically positioned producer like POSCO particularly bullish. The geopolitical situation in Korea warrants careful and continued attention, but I believe a demand-focused investment thesis for POSCO remains well intact. After sharing your thoughts below, consider adding POSCO to your watchlist (click here), or cast your vote on the company's shares in your Motley Fool CAPS portfolio.
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