BLBG:South Korea Stocks, Won Slide on North Korea ‘Turmoil’ Risk as Leader Dies
South Korea’s stocks dropped the most in five weeks and the won sank to a two-month low after the death of North Korean leader Kim Jong Il sparked concern there will be a power struggle in the communist nation.
A government statement called on North Koreans to “loyally follow” Kim Jong Un, one of Kim Jong Il’s sons. Stocks and currencies extended losses in Asian markets because of concern about instability in a nation that in 2009 defied threats of United Nations sanctions to test nuclear arms. The North was held responsible last year for the sinking of a South Korean naval vessel as well as a deadly cross-border artillery attack.
“We could see a lot of internal turmoil in North Korea,” Sandy Mehta, the Hong Kong-based chief executive officer of Value Investment Principals Ltd., said in e-mailed comments. “Long-term, with Kim Jong Il out of the picture, we could be looking at a more rational country, which would be positive for the Korean peninsula and the Asian region.”
The Kospi (KOSPI) index slumped 3.1 percent to 1,782.76 as of 1:28 p.m. in Seoul, the biggest decline since Nov. 10, according to data compiled by Bloomberg. The won weakened 1.6 percent to 1,177.20, earlier touching a level of 1,179.95 that was the weakest it’s been since Oct. 7. Three-year bond futures declined 0.2 percent to 104.39, Korea Exchange prices show.
‘Geopolitical Risks’
“The report is heightening geopolitical risks of South Korea, and we expect to see investors shying away from the won for some time,” said Yun Se Min, a Seoul-based currency dealer at Busan bank. “There is speculation the Korean government intervened to curb losses as the won fell to 1,175.”
Shares of companies that produce military supplies in South Korea rallied. Speco Co. (013810), a defense equipment manufacturer, Victek Co., which makes electronic warfare equipment, and Huneed Technologies, a military communications equipment manufacturer, all rallied by the daily limit of 15 percent.
Kim, 70, died on Dec. 17 of exhaustion brought on by a sudden illness while on a domestic train trip, the official Korean Central News Agency said. The MSCI Asia Pacific Index of shares slumped 2.1 percent and the Bloomberg JPMorgan Asia Dollar Index -- which tracks the region’s 10 most-used currencies excluding the yen -- fell 0.4 percent.
“Political uncertainty in North Korea is putting Asian investors on guard,” said Jagannadham Thunuguntla, chief strategist at SMC Wealth Management Services Ltd. in New Delhi. “The market is sensing fresh tensions may break out on the Korean peninsula.”
To contact the reporter on this story: Jiyeun Lee in Seoul at jlee1029@bloomberg.net; Saeromi Shin in Seoul at sshin15@bloomberg.net
To contact the editors responsible for this story: Sandy Hendry at shendry@bloomberg.net; Darren Boey at dboey@bloomberg.net
