Korean stocks tumbled 3.43 percent on Monday as the news of North Korean leader Kim Jong-il's death prompted selling by foreign investors, analysts said. The local currency plunged against the U.S. dollar.
After dropping as much as 4.86 percent at one point, the benchmark Korea Composite Stock Price Index (KOSPI) fell 63.03 points to 1,776.93. Trading volume was heavy at 675.3 million shares worth 6.58 trillion won ($5.6 billion), with losers far outnumbering gainers 812 to 70.
Earlier in the day, the North's Korean Central News Agency said the 69-year-old Kim, who took over North Korea after his father and national founder Kim Il-sung died in 1994, "passed away from a great mental and physical strain" during a train ride at 8:30 a.m. on Saturday.
"The KOSPI underwent losses following the announcement but historic data show the fallout from North Korean risks is usually short-lived. The impact is unlikely to last more than two days this time as well," said Clemens Kang, an analyst at Woori Investment & Securities Co.
According to Kang, data show that the benchmark index has normally undergone correction for one to two days following a North Korean episode, but regained an average 2 percent after five trading sessions.
In 1994, the KOSPI retreated 0.79 percent on July 11, the first trading session after the official announcement of Kim Il-sung's death, but rebounded 1.24 percent in the next trading session.
Some analysts, however, warned the recent North Korea leader's death may have a longer-than-expected impact this time around.
"Foreign investors have a bigger influence on the local financial market compared with 1994, when the local financial market was not open," said Daishin Securities Co. analyst Hong Soon-pyo. Overseas investors dumped an estimated 206.5 billion won worth of shares.
Hong added there is heightened uncertainty over the North's power hierarchy, given that the communist regime had not completed its power transition to Kim's heir-apparent son Kim Jong-un.
Shares lost ground across the board, with tech and refiner blue chips leading the decline. Market bellwether Samsung Electronics slumped 3.64 percent to 1,007,000 won and top oil refiner SK Innovation fell 6.38 percent to 139,500 won.
Defense shares, however, gathered ground on hopes they would benefit from the heightened tension, with Huneed Technologies surging by the daily limit of 15 percent to 3,335 won.
Shares of food and beverage makers also gathered ground, with leading instant noodle seller Nongshim gaining 2.69 percent to 248,000 and Samyang Food skyrocketing 14.89 percent to 48,600 won.
The local currency closed at 1,174.8 won against the greenback, down 16.2 won from the previous close, as investors fled for safer assets amid increased geopolitical risks over the Korean peninsula, dealers said.
Bond prices, which move inversely to yields, closed sharply lower. The yield on three-year Treasuries jumped 0.09 percentage point to 3.42 percent and the return on the benchmark five-year government bonds also rose 0.09 percentage point to 3.57 percent.
"Foreign selling of futures and a strengthening U.S. dollar may increase volatility in the bond market, but they are like to have a short-term impact," said Hyundai Securities Co. Park Hyuk-soo in a report. "The North's succession process is what investors should keep their eyes on." (Yonhap)