New Frontier Markets Online: North Korea and Cuba


Over the past week two of the most isolated countries in the world opened up their borders to global communications networks. North Korea opened up its phone networks to foreigners, allowing them to rent phones and make calls outside of the country when visiting. Not to be outdone, Cuba finally activated its lone fiber-optic cable, setting the foundation for modern phone and Internet capabilities. While both of these countries are still almost impossible to invest in for even the most intrepid of frontier market investors, we took a look at the current state of the market in the hopes that they will continue to open up in the future.

North Korea:

Even with a young, foreign-educated new ruler in Kim Jong Un, North Korea is in no rush to join the rest of the world and continues to live up to its billing as the Hermit Kingdom. Equity markets are non-existent in this centrally planned economy, but brave (foolish?) investors desperate to invest in the country have another option: defaulted government bonds from the 1970s. More details can be found here, but they are more of a pipe dream than a value play. On a larger scale North Korea is pitching businesses to set up shop in a couple of special economic zones. However, due to their checkered past in business partnerships with both China and South Korea (their two biggest trading partners), progress has remained slow.

But what about their communications networks? It is estimated that over a million cell phones are in use (about 4% of the population), but even those are on a separate network. They have their own internet, called Kwangmyong, that is walled off from the World Wide Web and makes the Great Firewall of China look open. All hope is not lost though; the country released its first ever video game in December, “Pyongyang Racer” (with 3D graphics no less!). Created by North Korean firm Nosotek, their website actually looks better than many of the sites we see in more established frontier countries.

For additional colour on North Korea, we recommend this post by Sophie Schmidt, the daughter of Eric Schmidt (Google) who just led a delegation to the country.


For non-Americans, Cuba has not actually been too remote with the country well known as a tourist destination and for its cigars. As another centrally planned economy, the government employs the vast majority of people (above 80%), but this has trended down with large layoffs every year. Cuban public asset markets have mirrored North Korea’s: equity markets are non-existant, but investors can choose to invest in defaulted Cuban bonds, also originally from the 1970s (details here). However, more interesting was the rule change in 2011 allowing people to buy and sell homes, legalizing private property. This was a nice step along a gradual move towards capitalism, especially with many of the laid-off government workers starting businesses.

Internet access in Cuba is spotty at best, relying on satellite networks which will hopefully be rendered obsolete by the newly online fiber optic cable. Like North Korea, most people in Cuba have only access to a national intranet, with internet access among the lowest in the world. However with hopes of regime change (mainly due to Fidel Castro getting on in years) and an opening communications network, the growth potential in Cuba is tremendous, especially if US sanctions get lifted in the future.

Public equities with Cuban exposure:

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