North Korean news adds to investor fears

BATTLE-WEARY investors were again hit by global headlines yesterday, this time from the Korean peninsula.

By InvestSMART · 20 Dec 2011

By InvestSMART ·
20 Dec 2011

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BATTLE-WEARY investors were again hit by global headlines yesterday, this time from the Korean peninsula.

The main Asian markets lost ground, with Japan's Nikkei 225 retreating 1.26 per cent and Hong Kong's Hang Seng slipping 1.18 per cent.

The Australian market was one of the worst performers, with the S&P/ASX 200 Index dropping

98.8 points, or 2.4 per cent,

to 4060.4.

Only South Korea's Kospi Index, which fell 3.4 per cent, was harder hit.

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

Even before news of the dictator's death reached the market, the week had got off to a poor start after the business commentator Alan Kohler said he would reduce his exposure to equities, fearing a looming panic selloff 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," Mr Kohler wrote in his influential Week in View.

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

Woodside Petroleum dragged energy stocks lower on signs that work on a gas processing plant in Western Australia's north might not proceed. The company had already delayed making a decision on a $30 billion gas project in the state's Browse Basin so investors pummelled the stock, sending it down $1.06, or 3.4 per cent, to $30.24.

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

Billabong shares plunged 44.2 per cent after the company warned that its first-half profit could fall by as much as 26 per cent. The Australian surfwear manufacturer said earnings before interest, tax, depreciation and amortisation would be between $70 million and $75 million for the six months to December 31, down from $94.6 million in the previous corresponding period. Billabong shares closed down $1.61 at $2.03.

The big four banks all

lost ground, with Commonwealth falling 84?, or 1.7 per cent, to $48.29,

and Westpac losing 46?, or 2.2 per cent, to $20.05.

The dollar fell almost

half a US cent, ending the day on US99.24?, down from US99.70? on Friday.

European stocks opened lower but last night were up about 0.5 per cent, with US futures also in positive territory.

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Frequently Asked Questions about this Article…

Why did global and Asian markets fall after news from the Korean peninsula?

The article reports that markets reacted to the death of North Korean leader Kim Jong‑il, which increased geopolitical uncertainty. IG Markets strategist Stan Shamu said succession and change create uncertainty that isn't good for markets, contributing to falls across major Asian indices and global markets.

How badly did the Australian share market (ASX 200) perform and which indices were hit hardest?

The S&P/ASX 200 dropped 98.8 points, or 2.4%, to 4060.4. In Asia, Japan's Nikkei 225 fell 1.26% and Hong Kong's Hang Seng slipped 1.18%, while South Korea's Kospi was hardest hit, down about 3.4%.

What happened to Woodside Petroleum's share price and why did energy stocks fall?

Woodside Petroleum fell $1.06, or 3.4%, to $30.24 after signs that work on a gas processing plant in northern Western Australia might not proceed. The company had already delayed a decision on a $30 billion Browse Basin gas project, and that uncertainty dragged energy stocks lower.

Why did Billabong shares plunge and what were the company's earnings warnings?

Billabong shares plunged 44.2% after the company warned first‑half profit could fall by as much as 26%. It forecast EBITDA of between $70 million and $75 million for the six months to December 31, down from $94.6 million in the previous corresponding period; shares closed down $1.61 at $2.03.

How did major miners and banks perform during the selloff?

Major miners fell: BHP Billiton lost $0.87, or about 2.5%, to $34.32, and Rio Tinto lost $1.60, or about 2.6%, to $60.20. The big four banks also lost ground: Commonwealth Bank fell about 1.7% to $48.29 and Westpac lost about 2.2% to $20.05.

Did commentators recommend reducing equity exposure during this period of uncertainty?

The article quotes business commentator Alan Kohler saying he would reduce his exposure to equities, fearing a panic selloff; he wrote he might reduce his already reduced equity exposure to zero. These comments reflect the caution among some market observers at the time.

How did currency and international futures react to the market moves?

The Australian dollar fell almost half a US cent, ending the day at US99.24¢, down from US99.70¢ on Friday. European stocks opened lower but were up about 0.5% later, and US futures were reported to be in positive territory.

What should everyday investors watch next after geopolitical headlines and company warnings?

Based on the article's coverage, investors should monitor developments tied to geopolitical uncertainty (such as succession news from North Korea), company announcements and project decisions (for example Woodside's Browse Basin plans), and corporate profit warnings like Billabong's update, since these types of events were driving market moves described in the article.