How Kim Jong Il's Death Could Affect Investors

Rumors of the North Korean leader's death have hit a fever pitch after this story that the country is trying to import expensive medical equipment, presumably to deal with Kim's ailing health.

Instability coming out of North Korea tends to have a dampening effect on Asian financial markets and the value of South Korean won. But the last major brouhaha--when North Korea tested a nuke in May--barely made a peep with traders. Gary Dorsch of Seeking Alpha says that's because traders decided that "it was just a harmless display of Kim Jong Il’s temper tantrums that erupts once every few years."

But if North Korea were to lose its leader, the ensuing uncertainty might be taken more seriously precisely because no one seems to have a firm grasp on what would happen.

Doug Bandow lays out the scenario that the Korean situation could become even more unstable following Kim's death:

More likely would be a collective leadership, perhaps led by Kim’s brother-in-law, with increased influence for the military. That would probably make a negotiated settlement eliminating the North’s nuclear program even less likely.

The blog DPRK Studies agrees that collective leadership is the most likely scenario. However, that could be a positive thing: "such a group" could adopt "drastic reforms" that would steer North Korea away from the cult of Kim.

But such positive steps probably would only be seen in the long-term, so in the short-term, fear that North Korea could become more bellicose would rule the day.