Joon.Seok@morganstanley.comLaura.Wang@morganstanley.comDeyi.Tan@morganstanley.comMin.Dai@morganstanley.comMORGANSTANLEY&CO.INTERNATIONALPLC,SEOULBRANCH+JoonSeokEQUITYANALYST+822399-4934MORGANSTANLEYASIALIMITED+LauraWangEQUITYSTRATEGIST+8522848-6853DeyiTanECONOMIST+8522848-7410MinDaiSTRATEGIST+8522239-7983MorganStanleyappreciatesyoursupportinthe2019InstitutionalInvestorAll-AsiaResearchTeamSurvey.Requestyourballot.SouthKorea/ChinaStrategy&EconomicsSouthKorea/ChinaStrategy&Economics||AsiaPacificAsiaPacificBaseCaseofSustainableDe-escalation;ButWhatIf?Canthe2ndUS-DPRKsummitonFeb.27-28beaninflectionpointfortheN.Koreageopoliticalissue?Ourbasecaseissustainedde-escalationpost-Summitbut...:SincethefirstUS,NorthKoreasummit,progresshasbeenslow,butweexpectasustainablede-escalationscenarioassumingdiscussionsareconstructiveandbothsidescontinuetalkspost-Summit.…canwereach'BreakingtheIce'scenario?Uncertaintiesremain:Webelieve'breakingtheice'wouldrequireaclearroadmapfordenuclearizationandconcessionswhilegoingbeyond'breakingtheice'wouldrequiredenuclearizationactionslinkedwithprogressiveandsynchronousunwindingofsanctions.Alotofgroundneedstobecoveredforthesescenariostoplayoutandhencetheyarenotourbasecase.WhatopportunitiescouldunfoldifNorthKoreaweretoopenup?Althoughnotourbasecase,weestimateagradualVietnam-styleliberalizationprocesscouldbringinvestmentopportunitiesofuptoUS$9bn/year,whilereunificationofthetwoKoreascouldpresentinvestment/consumptionopportunitiesofuptoUS$77bn/yearduringthereconstructionphase.Further,inourwhatifscenarioinfrastructureupgrade/expansionandmining&materialswouldlikelybeareasforquickwinopportunities,butconsideringthemagnitudeofinfrastructureexpansionrequiredweexpectKoreanandinternationalparticipation.AsindustrializationandurbanizationtakeholdinNorthKorea,industrieswherere-ratingpotentialwouldlikelybehigherandmoresustainablewouldberealestate,travel&tourism,especiallyconsumerspending.Koreancompanieshaveinherentadvantagesbutoneswithstrongbrandpowerandabilitytocust...
