How to Trade Following the Death of Kim Jong Il

Most Asian stock markets fell on Monday as traders reacted to the news that North Korean dictator Kim Jong Il died over the weekend. Although few foreigners will mourn the passing of the North Korean leader, the markets were understandably rattled over concerns that his passing will create a power vacuum within the country. The North Korean government has always depended on absolute rule over the country in order to maintain its position of power but it is unclear how much control heir apparent Kim Jong Un will have over the country. The son of Kim Jong Il has been being groomed to take over the leadership of the country but he isn't even thirty yet, so it's unknown how loyal senior military officials will be to the young Kim Jong Un. South Korean financial markets are already some of the world's most volatile because of frequent negative news concerning the country's relations with its isolated northern neighbor. News of ship sinkings, artillery barrages and nuclear bomb tests by North Korea often cause the South Korean stock market and the country's currency to drop. Since little is known about Kim Jong Un, the world has no idea what to expect from North Korea's new leader. If he manages to stay in power and continues to employ the tactics often used by his father Kim Jong Il, Kim Jong Un could resort to all sorts of provocative moves in order to show foreign governments that he is in control and must be treated with respect. More missile and nuclear bomb tests could be coming and there could even be more military confrontations between North and South Korea. Over the past couple of years North Korea has conducted artillery barrages against a South Korean island and even sunk a South Korean naval vessel. South Koreans usually react with outrage to North Korean attacks but stop short of escalating the violence to a full scale war. If Kim Jong Un resorts to similar tactics, South Korea might feel that it's necessary to show the new leader that it will no longer allow North Korean attacks to go unanswered, which could lead to an all out war. The American government has often called on China to do more to ease tensions on the Korean peninsula but the Chinese have their own agenda. Although it's not stated to be official policy, China does not want a reunited, nuclear-armed Korea that is friendly with Western governments and has a large well trained army sitting on its border. So China can't be counted on to be a stabilizing influence during this time of transition and it might do everything within its power to keep North Korea from reuniting with its southern neighbor. Most indexes of Asian stocks were down significantly by the end the trading day in Asia. The KOSPI Composite Index of of Korean stocks plummeted 63.03 points, or 3.43%%, to 1,776.93 by the end of the trading on Monday in Seoul. The Taiwan Capitalization Weighted Stock Index, or the TSEC weighted index, dropped 151.76 points, or 2.24%%, to 6,633.33 during Monday trading in Taipei. The Straits Times Index fell 41.13 points, or 1.55%%, to finish Monday trading in Singapore at 2,618.09. The Nikkei 225 index of Japanese stocks was was down 105.60 points, or 1.26%%, to end Monday trading at 8,296.12. The Hang Seng Index of Hong Kong traded stocks fell 215.18 points, or 1.18%%, to 18,070.21 on Monday. Chinese stocks were among the best performers in Asia, as the SSE Composite Index of Chinese stocks was down just 6.60 points, or 0.30%%, to 2,218.24 during trading in Shanghai. It's still unclear how the death of Kim Jong Il will affect the future of the two Koreas. While there is great risk of short term volatility, Kim Jong Il's passing could lead the way to reforms that open up the North Korean economy or even a reunification with South Korea.

Traders who believe that the death of Kim Jong Il is a positive development might want to consider the following trades:

Traders who believe that the death of Kim Jong Il will raise tensions between North and South Korea may consider alternate positions: