North Korea transition: Markets will shrug it off
North Korea leadership change won't affect markets in the long term, analysts say, because North Korea is likely to continue business as usual.
In this file photo released by China's Xinhua News Agency, Kim Jong Un, the third son of North Korean leader Kim Jong Il, applauds while watching the 2010 Arirang mass games performance in Pyongyang, North Korea. Kim Jong Il's passing will not affect markets for more than a few days, analysts say.
Yao Dawei/Xinhua/AP/File
The death of North Korean leader Kim Jong il sent Asian equities tumbling on Monday as worries over stability in the region spooked investors. But analysts told CNBC that the downside from North Korea would be short-lived.
鈥淚f you look back at our past experience in 1994 when Kim il sung, Kim Jong il鈥檚 father died, we lost 2-3 percent the next day but we gained right away in one and a half days,鈥� Cho Hong Rae, Senior Executive Director at Korea Investment Holdings, said.
听Richard Harris, Chief Executive of Quam Asset Management, agreed that the selloff in Asian equities would be limited. 鈥淧olitical news doesn鈥檛 have a lasting impact, of course if they start militarizing and it becomes more serious it would, but very often political news like this doesn鈥檛 have a long term impact.鈥�
Kim Jung un, the son of Kim Jong il, who is likely to take over as the new leader of North Korea, is also not expected to assert power via military action, say analysts.
听Colin Chapman, Vice President, Asia Pacific at global intelligence company Statfor, believes that unless the young general is 鈥渆gged on鈥� by the military, he is unlikely to take a bold stand.
听鈥淚 think it鈥檚 much more likely that his (maternal) uncle (Chang Sung taek) will play a prominent part and it will be business as usual,鈥� Chapman said.
听Hans Vriens, Managing Partner of Vriens & Partners, an advisory firm specializing in political risk analysis, adds that at the moment it is not in North Korea鈥檚 interest to raise political tensions.
听鈥淭hey've got more to deal with as a result of their leader鈥檚 death,鈥� Vriens said. 鈥淣obody, China nor Japan, or the U.S. or South Korea is interested or will benefit from a war in North Korea. And neither is it to be expected of North Korea to do something as stupid.鈥澨�
听China鈥檚 Role Critical
Both political and market watchers believe China, North Korea鈥檚 closest ally, will play a pivotal role in ensuring a smooth political transition in the single-party state.
China will continue to maintain its investments in North Korea, said Chapman, adding that stability across its border is a top priority for Beijing, particularly as it undergoes its own political transition in 2012.