Bloomberg News

Emerging Stocks Sink as Kim Jong Il Death Sows Stability Concern

December 30, 2011

Dec. 19 (Bloomberg) -- Emerging-market stocks fell the most in three weeks, adding to last week’s losses, amid concern the death of Kim Jong Il will increase tension on the Korean peninsula.

The MSCI Emerging Markets Index fell 1.7 percent to 888.77 at the close in New York, the lowest since Nov. 25. South Korea’s Kospi Index pared its losses to 3.4 percent after dropping as much as 4.9 percent when news of the North Korean leader’s death was made public. Chinese shares fell 0.3 percent and Brazilian stocks retreated 1.4 percent while Hungary’s index gained the most in two weeks.

Kim died on Dec. 17 from a heart attack, the official Korean Central News Agency said today. A government statement called on North Koreans to “loyally follow” his son, Kim Jong Un. South Korea called in police officers for emergency duty and said the central bank would take steps to stabilize financial markets if needed.

“What investors don’t like most is uncertainty,” said Im Jeong Jae, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which oversees about $28 billion. “Amid very limited information over his death, it’s very tricky to guess what will happen in the communist nation as well as the impact on regional security.”

Stocks also declined as European Central Bank President Mario Draghi said that substantial risks to the economy remain and that the bank can’t increase government bond purchases to fight the debt crisis.

Brazil, Hungary

The MSCI Emerging Market Index has fallen 23 percent this year, compared with an 11 percent drop in the MSCI World Index, as Europe’s crisis adds to concern tighter monetary policies in China, Brazil and India will curb growth. Shares on the developing-nation gauge trade at 9.8 times estimated earnings.

Brazil’s Bovespa Index dropped for a fourth day to the lowest since Nov. 29. Economists projected consumer prices will increase 6.52 percent this year, breaching the upper limit of policy makers’ target range, according to a central bank survey published today.

Homebuilder Gafisa SA plunged 13 percent, the most in the index. Lojas Americanas SA, Brazil’s second-largest retailer by market value, fell 4.5 percent, the most in 12 weeks.

Mol Nyrt., the biggest refiner in Hungary, jumped 6 percent after a report by the Independent on Sunday that Exxon Mobil Corp. is considering a bid for Gulf Keystone Petroleum Ltd., Mol’s exploration partner, to develop oil resources in Kurdistan, a region of Iraq. The BUX gauge, where Mol has a 34 percent weighting, rose 2.7 percent.

Defying Threats

The Shanghai Composite Index retreated as much as 2.7 percent after home prices posted their worst performance this year, before closing down 0.3 percent. The benchmark has tumbled 21 percent in 2011, exceeding last year’s 14 percent decline, as shipments to Europe, China’s biggest export market, slowed because of the region’s debt crisis and as the government raised interest rates to curb inflation.

Kim’s regime defied threats of United Nations sanctions, and in 2009 tested a second nuclear device and a ballistic missile capable of striking Alaska, and an international investigation blamed his government for the March 2010 sinking of a South Korean naval vessel which killed 46 sailors.

Samsung Electronics Co. lost 3.6 percent and LG Chem Ltd. retreated 5.2 percent. Huneed Technologies led gains among South Korea’s defense-related companies in Seoul trading.

Huneed, a military communications equipment manufacturer, jumped by the daily limit of 15 percent. Victek Co., which makes electronic warfare equipment, also surged 15 percent.

The extra yield investors demand to hold developing-nation debt over U.S. Treasuries rose two basis points, or 0.02 percentage points, to 432, according to JPMorgan Chase & Co.’s EMBI Global Index.

--With assistance from Krystof Chamonikolas in Prague. Editors: Linda Shen, Glenn J. Kalinoski

To contact the reporters on this story: Berni Moestafa in Jakarta at bmoestafa@bloomberg.net; Zachary Tracer in New York at ztracer1@bloomberg.net.

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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