North Asia’s Powder Keg Successions
South Korean stocks slumped in the immediate aftermath of Northern dictator Kim’s demise as his son and military advisers likely assume the reins and nuclear arsenal responsibility amid reports of another famine in rural areas. The US before his death had resumed food aid talks, and China and Russia had embarked on energy and construction joint ventures. Seoul has been preparing for its own political transition with legislative and presidential elections next year, with export-oriented GDP growth headed for another 3.5 percent indifferent performance. Domestic demand has been stunted by high household debt at over 150 percent of disposable income, according to the central bank, which has been reluctant to tinker with benchmark rates. The won in turn has been whipsawed by global trade and financial conditions as short-term external debt through foreign bank branches has again crept up, and officials have reactivated intervention and emergency swap support. The latter had been reinforced by a bilateral Fed line during the 2008 crisis, and this time a facility with Beijing was doubled to $60 billion to bolster $300 billion in reserves. A depreciation feed-through to already 4 percent inflation could combine with an unemployment uptick to hand defeat to the unpopular ruling party in the 2012 races with relations with its Communist neighbor set to feature now also as a prevailing theme.
Taiwan, where the exchange is off 20 percent, represents another explosive dual diplomatic and economic policy crossroads, as mid-January polls approach with incumbent President Ma holding on to a shrinking lead. His Kuomintang party has championed closer mainland ties including a breakthrough free-trade pact, but the opposition DPP has signaled continued conciliation while attacking the KMT for favoring the business elite. The challenger has however spurned the “1992 consensus” which endorses “one China” without defining details. Backers claim such a course is prudent since the island cannot be sure of Beijing’s intentions as the senior Politburo is reshuffled there. The impending shift has caused investor hesitance in Hong Kong as well, where exchange promoters are scrambling to reassess in light of sudden renimbi weakness and product launch delay. It has fallen behind New York in this year’s IPO sweepstakes as state-owned companies scale back cross-border listings, with the regulator anticipating future reliance on private firm offerings. Underlying costs and technology lag Singapore’s diverse platform seeking to attract pan-Asian interest. Japan too has foreshadowed a new era with a scheme to merge the Tokyo and Osaka stock markets, as recently-tapped prime minister Noda considers social security and consumption tax changes to stabilize the 200 percent of GDP public debt ratio with short-selling JGB strategies thus far backfiring.
