Scary times for stocks: Be careful out there

@lamonicabuzz December 19, 2011: 4:03 PM ET
The death of North Korea's Kim Jong Il sent shares of EWY, a top ETF that tracks South Korean stocks, tumbling. It's already been a tough year for South Korea as the globlal economy sputters.

The death of North Korea's Kim Jong Il sent shares of EWY, a top ETF that tracks South Korean stocks, tumbling. It's already been a tough year for South Korea as the globlal economy sputters.

NEW YORK (CNNMoney) -- Investors have been paying a lot of attention to one continent lately and giving the other six (well, I guess there's little that could happen in Antarctica to roil the markets ... penguins tend to be fiscally responsible) short shrift.

Surprise! The death of North Korean leader Kim Jong Il and all the glorious uncertainty that creates in Asia is a not-so-subtle reminder that there is a big world out there beyond Europe.


The markets mostly took the latest developments from North Korea in stride at the start of the day .But U.S. stocks did wind up taking a bit of a tumble later Monday -- mostly due to more worries about Europe and banks. European markets finished mixed.

Stocks in Hong Kong and Japan did fall more than 1%, however. And the iShares MSCI South Korea Index (EWY), an exchange-traded fund that tracks the country most directly affected by events in North Korea, tumbled 4%

But it seems safe to say that the world's markets weren't that concerned about the changing of the guard in North Korea. Heck, the news wasn't even enough to shake gold -- the ultimate geopolitical fear trade -- out of its recent funk. The yellow metal was down again Monday.

Still, it would be a mistake to completely ignore the potential for further turmoil on the Korean peninsula and the impact that could have on the rest of the world's financial markets.

"We look more toward Asia now than five years ago but we still don't pay as much attention now as we should," said John Norris, managing director with Oakworth Capital Bank in Birmingham, Ala. "Investors by and large are eurocentric when it comes to global affairs since that's where the money is. It's hard to break those habits."

South Korea has the 15th largest economy in the world and is the seventh-largest trading partner of the United States. If there is any significant military action there, companies ranging from tech giants Samsung and LG to automaker Hyundai could be affected.

The best way to play emerging markets

This is not to say that you should go out and dump stocks because there might be unrest in Asia. You shouldn't even rush to sell companies with exposure to South Korea, Japan or China.

But investors do need to realize that there are a lot of risks out there that may not be factored into the market. North Korea is just one of them. Like Sgt. Esterhaus said on "Hill Street Blues" -- Hey. Let's be careful out there.

Growing tensions between Iran and Israel could wreak havoc on the global economy next year as well. In case you forgot, there's a black liquidy substance in abundance in the Middle East that the world sort of still depends on for things like driving and cooling and heating buildings.

The good news -- if you want to call it that -- is that unease surrounding Iran and North Korea is not exactly new.

"The truth is North Korea has been such a wild card for such a long time," said Norris.

And as scary as big, bad nuclear bombs in the wrong hands may be, it looks like investors are still far more worried about big, bad toxic banks. Paul Nolte, managing director with Dearborn Partners in Chicago, said the market is likely to remain far more focused on (and worried about) the events in Europe.

"North Korea is much more of a political and security issue than it is a financial one," he said. "Yes, the potential for unrest and flexing military muscle is something not to be trifled with. Still, that's different from a bank or country not being able to pay its bills."

That's true. But there was a time when investors didn't think that Europe's mess mattered all that much. Greece? Who cares?

And before that, many market experts (and even a certain Fed chairman) professed that the housing market and U.S. banks were okay and that subprime mortgage problems were "contained." How did that work out, Mr. Bernanke?

24 hours inside South Korea's airport city

The only thing that's worse for an investor than a true panic is blissful ignorance. The market often has a way of sweeping a problem under the rug until there's no more room under the rug.

I guess you could say that the latest news from North Korea is a positive for the creators of "South Park." They might be able to easily get a "Team America: World Police" sequel featuring the puppet version of Great Successor Kim Jong Un. But that's about it.

"You have to know that there are things out there that will catch you coming out of leftfield. That could cause some short-term heartache," said Bill Stone, chief investment strategist with PNC Wealth Management in Philadelphia.

At the very least, smart investors should be thinking about how more tension in North Korea and elsewhere around the world may affect the markets next year. Don't just pretend that it's not a problem.

Best of StockTwits: Bank of America (BAC, Fortune 500) is stubbornly sticking to the Land of Lincoln. Shares hit a new 52-week low of $5. But many traders seem to think that a foot-long sandwich from Subway is probably a better long-term investment.

sellmeonu: 2008 marked the death of $BAC with the purchase of Countrywide.

Ouch. Death may be a stretch. I don't see how the government (despite all the talk about hating bailouts) can let BofA fail. And BofA is in better shape now than after Lehman collapsed. But it's true that the bank may need to raise more capital to deal with the sea of lawsuits tied to bad mortgages.

KeithMcCullough: Dont kid yourself, plenty of hedge funds are still long Citi against $BAC, when they should be short both $C.

I don't know how anyone in their right mind could make the case that Citigroup (C, Fortune 500) or another big Wall Street bank is in substantially better shape than BofA. Shorting is always risky but avoiding all the big banks seems to make the most sense right now.

event_trader: $BAC is going to get really ugly if it can't hold $5 - institutional sell off below this level.

We may soon find out how ugly it could get. BofA finally hit a 4-handle in late afternoon trading. We could be talking about a reverse stock split soon --- even though that didn't do much to help Citi's stock.

indiantraveler: $BAC - even the biggies need to tax plan - watch for buying in 2012.

Wow. That's a brave (and lonely) call.

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks. To top of page

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