Bluepoint daily market view – December 20, 2011
North Korean leader Kim Jong Il dies – what next? Kim, 69, defied and baffled world with his nuclear aims and bizarre actions. Kim was believed to have suffered from multiple chronic illnesses, but his death — reportedly from a heart attack while traveling by train on Saturday morning — was sudden. He had been grooming a son to succeed him, and his death creates uncertainty about the future direction of a nation with few international friends but a nuclear weapons capability.
His foreign-educated son, Kim Jong Un, who is in his 20s and is seen by most as the next leader, is largely unknown outside North Korea, to the point that even his exact age is debated. The elder Kim had raised his son’s profile and responsibilities over the last 18 months, but North Korea’s murky inner workings make it uncertain whether that succession will take. There are a lot of people who will initially cheer his death until they see what comes next.
Kim Jong Un is said to have a fondness for James Bond and basketball star Michael Jordan. He is believed to have studied in Switzerland and is thought to have English, German and possibly French language skills. In recent months, Kim Jong Un was tied to the disastrous effort to revalue the North Korean currency. That effort led to protests — unusual for the closed country — and food shortages as people took to bartering in absence of available currency.
So for the markets this is just one more negative headline risk – as if we did’t have enough to worry about. Most likely nothing will happen until it does. At best it will have no effect. At worst North Korea plunges into a divisive power squabble that could end in military action that will spook the markets sending the “risk off” trade even further. Unfortunately if Kim Jong Un, is strong he will seize power and it will be North Korean business as usual. If history is a guide this is not likely. Dictatorships always tend to end in disasters. This could give a bid however to Gold and Oil, while equities have negative pressure and Bonds kicking higher. A bit of dis-correlation could occur. In any case a story to watch. More volatility to come…