Rumors of North Korean leader Kim Jong-il's death spread through the South Korean stock market on Tuesday, driving share prices down and causing the won to plunge against the U.S. dollar. The KOSPI hovered around the 1,915 point level, similar to Monday's close, but fell steeply at around 2:20 p.m. when the rumors hit the market. It closed down 0.8 percent (15.96 points) at 1,903.14.
The won, which had been slowly strengthening, reversed direction and closed at W1,121 per dollar, down W4.1 from the previous day's close.
As the rumor spread, shares of defense-related companies surged. S&T Dynamics, which makes weapons and aviation systems, closed up 6 percent at W15,900, while Speco, which makes fin stabilizers for naval destroyers, ended up 4.2 percent. Embedded systems developer MDS Tech gained 3.7 percent, and Huneed Technologies, which makes communication and security systems, 3.5 percent.
A Unification Ministry official said there was no substance to the rumors. "The North Korean media reported a public appearance by Kim just yesterday," he said. "We have detected nothing unusual." The North's official Korean Central News Agency on Monday said Kim and his son and heir apparent Jong-un visited an air force base.
The markets were awash with rumors Tuesday, including an imminent attack on Iranian nuclear facilities by Israel, a major Japanese bank facing a crisis due to exposure to European bonds, and a top U.S. power company seeking bankruptcy protection following drops in utility prices. Han Bum-ho, a researcher at Shinhan Investment Corporation, said, "None of these rumors are confirmed. It looks like investors' imagination went wild with just 10 days to go before options expire."
Kim Hak-kyun of Daewoo Securities said, "If investors had taken these rumors seriously, the market would have reacted more severely. The rumors spread through on-line messaging services and were viewed more as gossip, so the impact wasn't that big."