Kim Jong-Il has died- about time! He has looked like death for the last 3 years. The man was a brutal dictator which led to the deaths of millions of Korea’s, a lot through an unnecessary famine. He was a megalomaniac which demanded his poor subjects pay homage to him in elaborate annual ceremonies celebrating his birthday. This is from a country that has one of the lowest GDP per person on the planet. People were literally dying of starvation but still “had” to show their support.
Even in his death he is harming his country. His chosen successor is his youngest son, Kim Jong-Un. He was rumored to have been chosen since he is most like Kim Jong-Il. Kim Jong-Un is only 27 years old. Let that sink in for a minute. At 27 I was still drinking and partying on regular basis. A 27 year old in charge of a large army with nuclear weapons that has been in a constant state of war for over 60 years. There is no way he will be effective at first. He will want to be seen as a tough bastard to build his reputation. Most likely he will have an itchy trigger finger and not the maturity to know the proper course of action.
What is likely to happen is another brother or general will work to over throw him. Hopefully the person that over throws him has the military fully backing him. If not you will likely see a full blown civil war. Then it all falls apart, which I would not have an issue with except that they have a vast array of weapons including nuclear missiles cable of reaching South Korea, Hong Kong, Singapore, and possibly Tokyo- all major trading areas. This could impact large amounts of people and commerce, and thus affect you and me.
When will this happen? The most opportune time is in the first few weeks when everything and everyone is thrown into disarray. This is when there is the greatest chance of a successful coup D’at. To prevent this, the new leader will likely imprison his brothers to prevent them from butting in. The longer that time goes by the more likely that a group of generals that control large parts of the military will take over. Some will do it out of what they feel is the patriotic duty. Some out of power and profit.
Days are numbered
The days of the regime in North Korea are numbered. When there is a great change like this, especially one where the new ruler did not work their way up the ranking, there is always a great deal of resentment. This is the spark of the change. I will be shocked to see Kim Jong-Un in power longer than a couple of years before the military decides that they have other plans. What happens next is the greater unknown.
I would underweight South Korean stocks for the foreseeable future. The risks are too high and the market and results too uncertain. If you want to play the market I would play long-term leaps betting against the Kospi Index and build cash for the time when a coup or war breaks out. If a coup or war breaks out, this will cause the investors to flee the Kospi market in mas. Then you can swoop in and buy casually over the next few weeks at bargain basement prices.
Full Disclosure
Nothing to say except I really do not care what happens in North Korea except for its impact on global trade. As of December 19, 2011 I do not own any leaps in the Kospi index nor do I plan to over the next few days.
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