The death of North Korean leader Kim Jong Il shook markets in South Korea and reverberated across the Asia-Pacific region Monday, but managers don't expect any political uncertainty to have a lasting impact on Asia's economies.
Mr. Kim's, whose death at age 69 was announced on Monday, triggered South Korea's benchmark Kospi stock index to close down 3.4% while the won dropped 1.6% against the dollar. Elsewhere in Asia, Japan's Nikkei 225 index retreated by 1.3% and Hong Kong's Hang Seng dropped 1.2%.
“We'll have to monitor developments closely in terms of the successor and relations with South Korea,” said Stephen Docherty, head of global equities at Aberdeen Asset Management in Edinburgh, but “the greater concern for investors is the debt problems of developed markets.”
The political risks to South Korea are limited “as both sides of the Korean peninsula have prepared for this scenario for several years,” Hyung Jin Lee, investment director of Asia-Pacific equities at Baring Asset Management, said in an e-mailed statement.
In September 2010, Mr. Kim announced that he would be succeeded by his third son, Kim Jong Un. Uncertainty over the new leader's ability to muster political support both within North Korea and elsewhere in the region has destabilized markets, Mr. Hyung said.
“The key thing to look for will be evidence that the ruling elite are backing Kim Jong Un,” according to Mr. Hyung, who is based Hong Kong. “Externally, we will be looking for signs of support from China, North Korea's most important political partner.”
However, Mr. Hyung added, “the economic links between North and South Korea are very limited with little prospect of contagion from any possible regime change in North Korea.”
Emerging markets have generally underperformed so far this year, largely related to investors' aversion to risk amid the eurozone sovereign debt crisis, sources said. The MSCI Emerging Market index has fallen about 23% so far this year compared with about an 11% decline in the MSCI World index, which comprises developed markets.
“While important and significant in and of itself, (Mr. Kim's death) is unlikely to cause any major shakeup of the economies of Asia,” said Judith Saryan, vice president and portfolio manager at Eaton Vance Investment Managers.