Gloomy start worsens after Kim Jong-il's death

BATTLE-WEARY investors were again hit by global headlines, with news of the death of North Korea's dictator Kim Jong-il yesterday shaking investor faith in equities markets.

By InvestSMART · 20 Dec 2011

By InvestSMART ·
20 Dec 2011

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BATTLE-WEARY investors were again hit by global headlines, with news of the death of North Korea's dictator Kim Jong-il yesterday shaking investor faith in equities markets.

Asian markets lost ground, Japan's Nikkei 225 retreating 1.3 per cent and Hong Kong's Hang Seng Index slipping 2.1 per cent.

The local bourse was one of the worst performers. The S&P/ASX200 lost 98.8 points, or 2.4 per cent, to 4060.4, and the All Ords lost 104.9 points, or 2.5 per cent, to 4113.9.

The Australian dollar lost almost half a US cent, ending on US99.24?, down from US99.70? on Friday.

"Kim Jong-il's death is the latest spanner in the works. Although a succession plan was already in place, change means uncertainty and uncertainty is not good for markets," Stan Shamu, a strategist at IG Markets, wrote in a note.

The week had started gloomily before Kim's death was announced after the business commentator Alan Kohler said he would reduce his "exposure" to equities, fearing a looming panic sell-off on the sharemarket.

"I don't know when it will happen and it is not a certainty that it will happen ... but I think the risk is now such that you must take action," he wrote in his Week in View.

"I will be significantly reducing my already reduced exposure to equities, possibly to zero."

Woodside Petroleum dragged energy stocks lower after rumours it wanted to delay building a gas processing plant in Western Australia's north. The firm had already delayed making a decision on a $30 billion gas project in the state's Browse Basin so investors pummelled the stock, with shares dropping $1.06, or 3.4 per cent, to $30.24.

BHP Billiton fell 87?, or 2.5 per cent, to $34.32, while Rio Tinto fell $1.60, or 2.6 per cent, to $60.20.

Billabong shares fell 44 per cent after the company warned its first-half profit could fall by as much as 26 per cent. The surfwear manufacturer said earnings would be between $70 million and $75 million in the six months to December 31, down from $94.6 million on the previous corresponding period. The shares closed at $2.03, down $1.61.

The banks all lost ground, with the Commonwealth dwon 84?, or 1.7 per cent, at $48.29, and Westpac 46?, or 2.2 per cent, to $20.05.

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Frequently Asked Questions about this Article…

How did the death of North Korea’s Kim Jong‑il affect global markets and the ASX?

The article reports that global markets sold off after Kim Jong‑il’s death, with Asian indexes falling (Japan’s Nikkei 225 down about 1.3% and Hong Kong’s Hang Seng down about 2.1%). Australia’s local bourse was hit hard: the S&P/ASX 200 lost 98.8 points (about 2.4%) to 4,060.4 and the All Ordinaries fell 104.9 points (about 2.5%) to 4,113.9. Strategists in the article said succession news increases uncertainty, which is often negative for markets.

What happened to the Australian dollar after the market reaction to the news?

According to the article, the Australian dollar weakened: it lost almost half a US cent, finishing around US99.24¢, down from about US99.70¢ the previous Friday.

Why did Woodside Petroleum shares fall and how large was the decline?

The article says Woodside dragged energy stocks lower after rumours it wanted to delay building a gas processing plant in northern Western Australia. The company had already delayed a decision on a $30 billion Browse Basin gas project. Woodside shares fell $1.06, or about 3.4%, to $30.24.

How did large miners BHP Billiton and Rio Tinto perform during the sell‑off?

Both major miners declined on the day covered by the article: BHP Billiton fell 87¢, or about 2.5%, to $34.32, while Rio Tinto dropped $1.60, or about 2.6%, to $60.20.

What caused Billabong’s dramatic share price fall and how big was the drop?

Billabong warned that first‑half profit could fall by as much as 26%, forecasting earnings of $70 million to $75 million for the six months to December 31, down from $94.6 million in the prior corresponding period. After that profit warning, Billabong shares plunged about 44%, closing at $2.03, down $1.61.

How did the big Australian banks react to the market downturn?

The banks lost ground in the sell‑off reported in the article. Commonwealth Bank shares were down about 84¢, or 1.7%, to $48.29, while Westpac fell about 46¢, or 2.2%, to $20.05.

Did market commentators recommend reducing equity exposure after these events?

The article quotes business commentator Alan Kohler saying he would reduce his 'exposure' to equities, warning of a possible panic sell‑off and saying he might reduce exposure to zero. A strategist from IG Markets, Stan Shamu, is also quoted saying succession and change create uncertainty, which is not good for markets. The article relays these views but does not provide specific investment advice.

What are the key takeaways for everyday investors from this market volatility?

The article highlights three clear takeaways: (1) geopolitical events such as the death of a leader can trigger market volatility and currency moves; (2) company‑specific news—project delays at Woodside and profit warnings at Billabong—can sharply affect individual stocks and sectors; and (3) commentators in the piece emphasised that uncertainty often prompts calls to reduce equity exposure. Those points reflect how both macro headlines and corporate announcements moved markets on the day described.