Both the currency and main stock index for South Korea have dropped after the news that North Korea’s leader Kim Jong-il had died.
The Bank of Korea is set to hold an emergency meeting to discuss the death and the possible upheaval in the country that could follow.
Questions about who will succeed Kim Jong-il as North Korea’s sovereign will likely produce more volatility, analysts have said of the delicate situation. Without a stable line of succession and power, markets cannot be stable.
However, other experts, such as economist Bae Sung-Young, say that the affects on the market are inevitable short-term effects that would come after any event that brings uncertainty.
Bae predicted that the impact on the markets should last “two to three days only.”
However, with the succession process looking incomplete after the death of the famous dictator, market volatility may plague the region for some time.
The South Korean currency, the won, fell after the death of Kim was announced. The price of the country’s bonds also dropped, spelling bad news for the Korean economy, as this pushed up the government’s borrowing costs.
The effects hit markets throughout the region of Asia, as Japan’s Nikkei 225 stock index was down 1.3% in afternoon trading. Shares in Hong Kong’s Hang Seng listings fell 1.2%.
Fight for power
Though Kim Jong-il proclaimed his third son, Kim Jong-un, to be his successor in September 2010, the transfer of papers does not appear to be so clear.
Analysts say that there may be a power struggle, which could lead to even more market violence as investors run from a risky market.
The market has been “worried” about a power struggle in the North Korean government for over 2 days now, and the country’s history of withholding information from the international community is only serving to heighten the anxiety.
Analysts say that the “global risk appetite” is small and likely to remain small, hurting North Korea’s chances at growth in the New Year. The won has been the second-worst performing currency since the summer, beat out in poor performance only by the Indian rupee.
This stall in growth and upheaval of markets will likely make things worse for the South Korean currency, which already had a negative outlook for 2012.