The death of North Korean leader Kim Jong-il sparked immediate concern in the market, pushing the won to a two-month low against the dollar and dropping Seoul stocks to a three-week low.
The benchmark KOSPI lost 3.43 percent and closed at 1,776.93 after sliding as much as to 1,750.60 at around noon when North Korea announced that the communist leader died on Dec. 17. The local currency lost 1.4 percent to 1,174 won against the greenback after dipping as low as 1,179.95. The junior KOSDAQ plunged 5.35 percent and closed at 477.61.
“Investors now have to deal with uncertainty from the heightened geopolitical risks on top of the eurozone debt crisis. More investors are expected to drop risky assets to avoid losses in the short-term,” Kim Hyung-ryul, a strategist at Kyobo Securities said.
Shares across all industries took a sharp downturn following the North’s announcement in the afternoon. The top 10 blue chips including Samsung Electronics, Hyundai Motor Co., Hyundai Mobis Co., Kia Motors Corp., LG Chem, and Hyundai Heavy Industries Co., lost between 1 to 4 percent. Samsung Electronics fell 3.64 percent to 1,007,000 won a share and Hyundai Heavy lost 3.02 percent to 257,000 won.
Economic policymakers convened an inter-ministerial meeting in the afternoon to discuss the impact of Kim’s death.
The Ministry of Knowledge Economy set up an emergency economic monitoring center to closely watch for any changes or developments in the market and report to a panel of policymakers. The Financial Supervisory Services and Financial Services Commission formed a joint task force monitoring fluctuations in the market.
“Given our strong economic fundamentals and financial soundness, (Kim’s death) isn’t likely to cause a negative influence on South Korea’s sovereign credit rating,” FSC chairman Kim Seok-dong said at the emergency meeting.
“But it is time we stay on emergency footing to respond to market needs as problems related to North Korea could increase uncertainties for the local economy.”
All three major credit rating agencies ― Moody’s Investors Service, Fitch Ratings and Standard & Poor’s ― said Kim’s death won’t affect the credit rating of Asia’s fourth-largest economy.
“Fitch does not view Kim Jong-il’s death as a trigger for negative action on South Korea’s sovereign ratings in itself,” said Andrew Colquhoun, Head of Asia-Pacific Sovereigns at Fitch.
“When the agency assigned a positive outlook to South Korea’s ‘A+’ rating in November 2011, we pointed to the situation with the North as a potential source of downside risk.”
By Cynthia J. Kim (email@example.com)