Asian Financial Markets Rise, Boosted by Saddam’s Capture

Asian stock markets rose, led by the U.S. capture of Saddam Hussein. On December 15, the KOSPI rose about two percent, to a high for the year. The Nikkei rose three percent.

The U.S. dollar increased in value against major currencies on the foreign exchange market in Tokyo as a sign of the “Hussein effect.”

International oil prices, which have continued their upward trend recently, will likely go south.

The Hussein Effect--Most Asian exchanges closed higher. The KOSPI went up 16.06 points, or 1.99 percent, to close at an 18-month high of 822.16. The Nikkei jumped by 3.16 percent, or 321.11 yen, and closed at 10,490.77. The Hussein effect was widespread and boosted indexes in Taiwan and Singapore.

“As of 1:30 p.m. Korean time, the capture of Hussein was well received on the Chicago Mercantile Exchange and the NASDAQ Futures 100 Index. They improved by 26 points,” said Hong Choon-ok, team leader of strategic investment at Hanhwa Financial Co.

Depreciation of the dollar slowed. The dollar, which rose in value to 1.27 against the euro last week, fell to 1.21, tempering its downward trend. The dollar also appreciated against the yen. It traded at 108.07 against the yen, down from 108.07 last week.

However, the stronger dollar did not reach Korea. It was expected that the dollar would rise in value on Seoul’s foreign exchange. But it was the won that rose. “It is still uncertain how the New York foreign exchange will react to news of Saddam’s capture and a hike in the stock market today contributed to further depreciating the dollar,” said Ha Jong Su, the leader of the won-dollar team of Korea Exchange Bank.

Tempering rising oil price--The upward trend of international oil prices has been tempered. January WTI eased $1.30, to $31.74 a barrel. Oil market forecasters believe that the Hussein premium on Dubai oil will reach about $3 a barrel. They also conclude that the capture of Hussein will ease political tensions in the Middle East, increase oil supply and reduce oil prices.

Effects on the local economy--What is most expected is a chain of the following events: the capture of Hussein leads to political stability in the Middle East; leading to a drop in international oil prices; leading to a speedy recovery of the U.S. economy; leading to an appreciation of the dollar; which finally leads to an increase in Korea’s exports.

“A fall in oil prices and a rise in the dollar would translate into an improvement of international trade and an increase in exports,” executive director Oh Moon Seok of LG Economic Research Institute said. “It will accelerate economic recovery.” However, some are cautious about how the Hussein effect will play out. “I expect it to positively affect oil prices, interest rates, stock indexes and exports,” said Prof. Chung Chang-young at the department of business administration at Yonsei University. “It will take time to find out how it actually will affect the country’s economy.”