Asian Markets a Higher Risk for Investors

Sources: Ignoring Asian Risk Doesn't Reduce It, Pyongyang and the U.N.

Asian markets are rounding the end of a strong year in 2006 and still going steady. This surprises some market analysts given the domestic upheavals that spotted the region this past year. However, the analysts are sounding warnings to the tune that, whether the market shows it or not, the risks of investing in the Asian stock markets have increased sharply. One particular concern is whether Thailand's new post-coup military regime will be able to keep a stable social and political front. Although the former ruler, Thaksin, was ousted because of his weak legitimacy, the unelected regime currently in power has even weaker legitimacy. In addition, the longer the new ruling power postpones elections for, the higher the chances that social unrest will again plague the country. In the Philippines, India, and Indonesia, the growing threat of international terrorism are predicted to take a blow to the economic, social and political stability of each of these countries.

In addition to these domestic factors are the external factors, such as the United State's reaction to North Korea's nuclear testing. The Bush administration is pushing for extreme sanctions against North Korea, which the United Nations may not support. Taking the matter in its own hands by sidelining the U.N. and pursuing the sanctions anyway will inevitably cause an escalation in the conflict between the U.S. and North Korea. If this escalation culminates in a military confrontation between the two nations, the economy of South Korea would probably be one of its first major casualties.

Despite the solid showing of most of these countries' markets in 2006, the state of domestic and foreign affairs affecting the Asian countries is predicted to eventually manifest itself in the market, as investors' risk perceptions become more closely aligned with actual investment risk in the region. This in addition to forecasts of a recession to hit the U.S. in the early part of 2007 has some analysts projecting a rough year ahead for the affected Asian countries as unrest continues.

Questions:

1. How should the U.S. approach the situation in North Korea to best preserve South Korea's market?

2. Might the simultaneous occurrence of so many political and social upheavals in the region have a "perfect storm" effect that may end up chasing foreign investors away in higher numbers and over a wider region?

3. What could "bystander" countries, such as South Korea, which stands to lose out due to the political unrest of neighboring North Korea, do to cushion a possible tumble in its markets?