North Koreans poured into the streets to mourn the death of iron leader Jong-il as state media hailed his untested son as the "Great Successor" yesterday.
The chances of a regime collapse have increased with the death of Kim Jong Il. This could be brought about either by a coup or by a failed attempt to reform the political and/or economic system (the Gorbachev legacy). There is a slight chance that regime collapse would lead to anarchy and civil war. However, North Korea’s centralized organization and concentration of power should prevent this worst of all outcomes…A big bang unification comparable to the German model is not an option for Korea. German reunification is estimated to have cost between USD600 billion and USD1 trillion over 10 years, equivalent to 30%-50% of West German GDP. However, the price tag would be significantly larger in the case of Korea, in effect ruling out this option altogether. –Erik Lueth, Royal Bank of Scotland
–South Korea most probably has contingency plans that include economic policy measures to military and diplomatic actions. The top priority in economic terms would be to limit market volatility and enhance market confidence. South Korea has currency swap lines with China (USD56bn) and Japan (USD70bn), which should help control the KRW, and if needed, could also reinstate their currency swap agreement with the US…Past experience, from Kim il Sung’s death in 1994 and including other military conflict on the peninsula, strongly suggests that the market will eventually rebound after an initial substantial sell-off. We see this event as posing short-term downside risks to our already below-consensus 3% GDP growth forecast for 2012. –Young Sun Kwon, Nomura
–The immediate reaction in the region’s financial markets has been negative, led by falls in South Korean equities and the won. This reflects concerns both about the uncertainty over the transition and the possibility that any new leader will want to assert his authority with some fresh act of provocation against the South. However, the process of grooming Kim’s third son, Kim Jong-un, for the succession had at least begun and he looks set to take over. The markets have also quickly recovered from previous military flashpoints which neither side has had any interest in escalating. –Julian Jessop, Capital Economics
–There is considerable doubt over the loyalty of insiders who may have been waiting for Jong Il’s passing to seize power ahead of the undistinguished son in his late 20s. North Korea has only had two leaders since WW2 and the handover to Kim Jong Il in 1994 was quite extended before Kim Il Sung died at age 82. The preparation for Jong Un’s succession has been relatively limited in comparison. –Sean Callow, Westpac Banking Corp.
–Market participants are well aware of North Korea-related risks following the sinking of South Korea’s Cheon-Ahn naval ship and the bombardment of South Korea’s Yeon-Pyeong Island in 2010. The chances of any improvement in North-South Korean relations in 2012 are low. The weak leadership of Kim Jong-un suggests that it will be difficult for North Korea to make key decisions on its relations with South Korea or the US, or on its nuclear weapons programme in the context of the Six-Party talks. –Suktae Oh,Thomas Harr and Jennifer Kusuma Standard Chartered
–Our conclusion is to remain defensive in response to the event: The developing outcome could be similar to previous episodes of significant newsflow from North Korea. However, this time around uncertainty may be greater and last longer. In addition to the death of Kim Jung Il, continuing uncertainty surrounding the European sovereign debt issue is likely to limit any potential upside to Korea equities in the near term. –Chanik Park, Barclays Capital For the latest updates on the stock market, visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
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