North Korean’s Kim Jong Il’s Death Sends Asian Stocks Tumbling

The shocking death of North Korea’s leader has sent Asian stocks tumbling, deepening concerns regarding the financial market.

Kim Jong Il’s death was announced last night in Pyongyang, the North Korean capital. Stability in the region has been compromised, and the reclusive regime will now undergo a major change in leadership.

South Korea’s Kospi index initially fell 4.1%, but later regained to trade 3.1% at 1,782.50. The won also slid 1.6% against the dollar. Aside from that common safe haven, the yen and the euro sank as well.

Japan’s Nikkei 225 index fell 1% at 8,314.44, while the Hand Seng plunged 2.5% to 17,833.42. Similarly, the Shanghai Composite Index fell 2.6%.

Tensions on the Korean peninsula have heightened, and South Korea has put both its police and military on high alert. President Lee Myung-Bak also convened national Security Council meetings. Japanese leaders are keeping an eye on markets, and are in touch with the U.S.

“We need to prepare for any contingencies,” said Jun Azumi, according to Kyodo News Agency.

Asian Currencies Fall Amid Investors’ Borrowing Costs Concerns

As financiers worry that borrowing costs in Europe will worsen the debt crisis, South Korea’s won and Indonesia’s rupiah set a falling trend in Asian currencies.

The won declined after bonds from France, Belgium, Spain and Austria climbed to the highest premiums since the euro was established, and the rupiah fell to its lowest since September.

“We think Asian currencies will depreciate by the end of the year because of the euro-zone fiscal crisis,” explained Dariusz Kowalczyk of Credit Agricole CIB. “Risk aversion will dominate trading in the near term.”

Italy’s bond yields increased more than 7%, propmpting Greece, Ireland and Portugal to call for bailouts. Meanwhile, Spain and Belgium’s debt auctions were not as successful as planned.

“Investors are buying the dollar amid all the uncertainties we are seeing in the global environment,” said Roy Paul of Federal Bank. “The rupee’s slide may induce intervention  from the central bank.”

Morgan Stanley’s Growth Estimate for Asia Drops as Inflation Increases

Like many other financial firms, Morgan Stanley has noted the withdrawal of international investors from stocks in Asia as the economies in the region begin to falter.

One example of this is South Korea, as the won continues to decrease in value. Morgan Stanley’s growth estimate for the nation has been lowered from 4% to 3.6%, while Deutsche Bank AG has lowered its expectations for China’s expansion as well, claiming that the economic crisis throughout the rest of the world will lessen the demand for Asian exports.

“Reported downgrades of economic forecasts reduced appetite for regional assets,” explained Lee Jin III of Hana Bank. “Stock market declines affected Asian currencies including the won.”

Finance Minister Bahk Jae Wan has confirmed that inflation issues continue to plague South Korea and that the government plans to use “all possible” measures in an effort to stabilize prices. For example, the Bank of Korea left interest rates unchanged for a second month in a row, following three major increases this year.

Good News for South Korea

According to a recent FKI report (Federation of Korean Industries), there was good news for South Korea vis-à-vis investment opportunities, based on data assembled by the OECD (Organization for Economic Cooperation and Development). Indeed, in an article on the report, the region’s business investment growth “ranked no. 1 among the world’s developed market economies,” in 2010. Now, it just has to keep up this title. Indeed, South Korea’s facility investment escalated 21.3 percent on-year last year which rendered it the “highest increase among 23 countries checked and far higher than runner-up Estonia, which posted investment growth of 14.1 percent.” America came third and Britain, fourth.

South Korea Big Investments

South Korea’s investment in national accounts reached 116.8tr won, with a substantial amount of this being put into machinery and the remainder into transportation-related equipment. Indeed, machinery investment increased more than 26 percent on the grounds of the purchase of additional IT products, autos and manufacturing machinery in a one-year timeframe. Transportation sector investment increased 6.2 percent in 2010; most of this capital was spent on trucks and other autos primarily used for business.

2009 Figures

The financial crisis led to problems in 2009 such as a drop in facility investment in the OECD countries to 19.5 percent but with South Korea it was only 1.2 percent. As well in 2010 South Korea witnessed an additional 2.3 percentage points to last year’s economic escalation vis-à-vis investments in business, which, according to an FKI official, “represented a significant contribution to national growth.”

Magnetizing Malaysia

It looks like those who want to make a sound investment might benefit from taking a peek at what’s been going on in Malaysia in recent times. The country’s “political stability and gateway to the huge market in the region,” is making it an increasingly good choice. As well, the region has received a significant economic boost due to implementations carried out under Datuk Seri Najib Tun Razak, the country’s Prime Minister.

America Ambles Towards Malaysia

So it now makes sense for Americans to make investments in Malaysia which it is doing. Since the South East Asia has a high population of nearly 600 million, this makes it a very large market. Just today, Datuk Seri Dr Jamaluddin Jarjis, the country’s Ambassador to America gave a brief to US journalists to prep them for the visit from Najib who is currently in England.

But the question on everyone’s lips is why would Americans be turning outside their already fragile-economy country to make investments elsewhere and not instead choose to help their own economy? Apparently Malaysia’s advantages render it a perfect “platform [through which] to enter the region.” In addition, America views Malaysia as “a serious player in protecting intellectual property rights and had a reliable work force with a good command of English.”

American-Malaysian Stats

If you just start looking briefly at the history of trading between the two countries, you will start to understand why there is so much excitement at future coalitions. Just last year for example, America was the fourth largest trader in Malaysia, resulting in $36.43bn, a jump of $5.4bn from the previous year. There are further investments predicted too, with the Malaysian Investment Development Authority (MIDA) anticipating American investments to jump 10 percent this year from 2010.

More Business Opportunities in SE Asia

There are continuously more and more business opportunities becoming available in South East Asia. Just yesterday, South Korea’s SK Telecom announced its $16.5m additional investment in a Malaysian broadband operator with a view to developing its presence in the SE Asian market. By 2020, it is expected that around 36 percent of the country’s population will be able to access broadband services. Right now that figure stands at half – 18 percent.

Malaysia Goes Muslim?

Another attractive feature about Malaysian investments is that the country could be used as “a partner to enter Muslim countries.” Various businesses are working with Malaysians in America in an attempt to “use our citizens as a bridge to the Muslim countries.”

Awesome Asian Achievements? Coming Soon

Asian Job Creation Scheme

The economic climate and job potential in Asia is about to get a kick-start. A group of economic development officials led by Gov. Bob McDonnell just set out on an “11-day job creation and economic development marketing mission,” to China, Japan and South Korea at an estimated cost of $278,000. This scheme will be financed by taxpayers. He is being joined by Jim Cheng, Secretary of Commerce and Trade, Todd Haymore, Secretary of Agriculture and those connected with Virginia.

The group is Virginia Economic Development Partnership which will – through the efforts – be able to try and develop relations with various companies and potentially acquiesce new clients for their projects as their will be a promotion of various investment/business opportunities hopefully also resulting in “job creation initiatives throughout the Commonwealth.”

Project Gets First Lady Backing

Not only is First Lady Maureen McDonnell supportive of this great project, she is showing it by being part of the mission. McDonnell will be traveling to China and South Korea “focusing her efforts on promoting tourism and the Virginia wine industry.” Her husband believes they have much to offer, offering “a great tax, regulatory and litigation environment,” amongst other incentives.

There will be meetings with CEO’s and business executives from around the world who will be told about the benefits of investing in Virginia. It is essential that jobs are created for “our citizens” who need them he said and thus the company “will not sit by and watch as the jobs….are awarded to other states and countries that choose to be more proactive and visible.”

Worldwide Job Creation Competition

It seems that right now there is a lot of competition to try and get more jobs in the private sector area that is set to “power and define the 21st century economy.” McDonnell wants Virginia to “win that competition,” which will lead to extra “jobs and opportunities” for the citizens to ensure a “better and stronger Commonwealth in the years ahead.”

Escalating Chinese Exports

In terms of the export markets, things are going well for China now. In 2000, china ranked number 14 but now it holds the number 2 position. This is why it is now a great environment to receive McDonnell and his mission in an attempt to “promote Virginia’s location advantages to approximately key 100 business executives.”

There is a great chance that this mission will be successful since McDonnell has done it before when he went to Europe last year. At the time he “helped close a lucrative economic development deal that led to the company investing $28.3 million to expand its O’Sullivan Films operation in Winchester.” Over 150 new jobs were created there following this.

So let’s hope McDonnell does it again and Asia’s job market will really benefit too.

South Korea ADIA Merger

In an attempt to escalate investments for the two, the Abu Dhabi Investment Authority (ADIA) is joining up with South Korea, seeking to develop the region’s state-run funds in a global capacity. The latter is known as being “one of the world’s largest sovereign wealth funds.” The National Pension Service (NPS) and Korea Investment Corp (KIC) are set to reap most benefits from this alliance which will enable ADIA to make investments through a South Korean local brokerage.

NPS Credibility

The NPS has some serious credibility. It is the world’s fourth leader in pension funds, standing at over 300 trillion won. But one can always take things further. It is today trying to escalate its overseas investments in the field of resources development.

KIC Financing

Where does the Korea Investment Corporation fit into all this? This organization has only been around for just over five years with the aim of “enhancing sovereign wealth and contribut[ing] to the development of the financial industry by efficiently managing assets entrusted by the Government and the Bank of Korea.” As well, it seeks to keep hold of its long-term purchasing power on its assets and “exceed investment target return” through the investment of “well-diversified, foreign currency denominated assets transacted in the international capital markets.”

ADIA’s Portfolio

ADIA is pretty impressive too. Owned by the Abu Dhabi government, the authority has been in business for over 35 years and is today recognized as a “globally diversified investment institution.” It spans over two-dozen areas, including: fixed income, private equity, infrastructure and equities.

So all in all this merger looks like it’s going to be mutually beneficial to the region and the authority. As soon as there is such a cohesion, it has a much greater possibility of being able to have a much larger and longer-term impact on the global economy.

Mid-East Flare Up Leaves Korea a Mess


While China’s economy and finance markets are looking bold and strong, its Korean neighbor isn’t faring quite so well.  The potential of the Middle Eastern mess is once again being blamed for the success and stagnation of the yuan and the won.  Indeed, statistics showed a hit of 345.35 billion yuan (probably supported by short- and medium-term bonds).  Meanwhile in North Korea the “dire economic situation” is so extreme that international food aid calls (which have likely lessened due to missile and nuclear programs) are becoming increasingly louder, apparently to no avail.  On the one hand the country was blaming international pressure for their failure while simultaneously asking the world for charitable handouts.  Despite its attractive-looking economy, China has not been dealing with the Middle Eastern mess so well, and instead psychologically ignoring its very existence, or running into a panic at the thought of what might entail.

China’s Success Mimics Korea’s Failure

So while the Chinese economy is going from strength to strength, the same can’t be said for Korea.  This hasn’t always been the case.  At one time, it was reported that South Korea was providing around 400,000 tons of rice each year to North Korea but once relations between the two started depleting around three years ago, this gift ended too.

Looking towards China though, things couldn’t be brighter.  It seems that Yujiapu is set to be home to “the world’s largest financial zone a decade from now.”  A set of twelve buildings are to be constructed marking just the “first phase” in this new financial world headquarter, really putting the rest of the region to shame.  While their brothers in North Korea are looking for bread and water, the Chinese are enjoying festive banqueting.


South Korea Investment News

KEPCO (Korea Electric Power Corp) just announced that South Korea will be investing $7.18 billion into a nationwide smart grid that is due for completion by 2030.  This investment is an attempt to “curb the country’s carbon emissions and improve efficiency in its electricity market.”  It seems that South Korea is the perfect location for smaller-scale greening efforts such as the transformation of landfills into hydrogen generators; the construction of huge 131-acre rooftop gardens; the introduction and use of electric scooters for local police.  This is great, but it comes alongside the fact that the country is quite a high carbon polluter within the OECD (Organization for Economic Cooperation and Development) countries. For South Korea, this will ultimately mean that 11 percent of energy will be taken from renewable sources like wind and solar.  The country will draw 11% of its energy from renewable sources, such as wind and solar.

South Korean Economics

If stock prices plummet and interest rates increase, South Korean households will suffer.  The Samsung Economic Research Institute (SERI)’s recent report showed a huge increase in individual debts, following the global financial crisis and a peak in loans.  But loans are not the answer since they are often based on the “floating interest rate system rather than fixed rates, which means debt levels rise when there is an increase in interest rates.” 

Figures show that South Koreans’ debts have basically increased at a steady pace in the last two years.  The government’s plan to help (debt-to-debt income ratio) is not a “proper” solution, according to the SERI report, which found that “the strict loan regulations should be regarded as part of policies to boost financial soundness of banks.”  While there has been a cap on this loan, in 2010 the government decided to raise this in an attempt to “revive the sluggish market.”  But because of the bullish stock market, assets and incomes are on the rise which has resulted in “an immediate household debt crisis.”

The report also predicted that if there is a 2% increase in interest rates, there will be an increase from 11.7 trillion to 16.1 trillion per quarter.  An increase in household debts will have to inevitably result in less spending money and thus a severe dent in the region’s economic growth.