South Korea pledges additional $94m to support rattled stock market

SEOUL - The South Korean government has decided to inject an additional 100 billion won (S$94 million) to stabilise the local stock market battered by deepening political uncertainty after

President Yoon Suk Yeol averted impeachment

last week.

On Dec 9, the first trading day after the failed motion to impeach Mr Yoon, the benchmark Kospi and secondary Kosdaq plummeted to new 52-week lows, while the Korean currency approached its weakest point since 2009.

Finance Minister Choi Sang-mok vowed that the government will spare no efforts to ensure all available market stabilisation measures are implemented immediately.

“Other market stabilisation measures, such as the stock stabilisation fund, are being prepared for immediate deployment at any time,” he added.

He said this during a meeting with three other top economic policymakers on Dec 9. Bank of Korea governor Rhee Chang-yong, Financial Services Commission chairman Kim Byoung-hwan and Financial Supervisory Service governor Lee Bok-hyun were in attendance to evaluate the current situation in the financial and foreign exchange markets and discuss future response plans.

Their meeting came amid growing concerns that fierce clashes between the ruling and opposition parties centring on Mr Yoon’s

brief imposition of martial law last week

would be prolonged and would affect domestic and foreign investor sentiment.

According to the announcement on Dec 9, the government will raise 70 billion won this week and 30 billion won next week to inject into the Value Up Fund, a part of the government’s Corporate Value Up programme aimed at raising shareholder value by investing in firms that enhance their corporate governance and market practices. The extra support follows a 30 billion won cash injection deployed last week.

Next week, the government also plans to roll out a second round of stabilisation funds worth 300 billion won.

Market experts see the stock market stabilisation measure as insufficient to convince investors to return to Korean shares.

“Investors want to see more aggressive measures with bigger amounts and a determination to turn policies into action. This is not a time for dribs and drabs,” said researcher Seo Sang-young of Mirae Asset Securities.

As at 2pm, the Kospi showed an intraday decline of 2.31 per cent to 2,372.07 points, while the Kosdaq shed 4.45 per cent to 631.87 points after touching a four-year low.

“(The domestic political situation) has entered a phase of political resolution and settlement, but political uncertainty has not been resolved,” said researcher Lee Kyeong-min of Daishin Securities.

“It is inevitable that it will be stirred by political issues, events and news.”

To ensure the stability of the bond market, the government plans to carry out emergency buybacks, and the Bank of Korea will increase its purchases of government bonds if necessary.

In a bid to address fluctuations in the exchange rate, the Bank of Korea also plans to boost short-term liquidity through reverse repurchase agreements if needed.

A measure to promote foreign exchange inflow will be announced later in December after consultation with other government bodies.

The focus of the South Korean financial authorities has been on boosting communication with external stakeholders. Letters have been sent in the name of the deputy prime minister to international credit rating agencies and financial institutions, foreign investors, the finance ministers of major countries, and investment banks while dispatching financial cooperation ambassadors to international organisations and major countries to ensure that South Korea’s credibility is not hit by the political crisis.

Mr Choi said he would operate a round-the-clock task force with economy-related ministers to monitor people’s livelihoods and the overall economy, including finance and foreign exchange, as well as consumption, investment, exports, employment and prices.

Mid- to long-term structural reforms, such as boosting industrial competitiveness and advancing foreign exchange and capital markets, will proceed as planned, the Finance Ministry said. THE KOREA HERALD/ ASIA NEWS NETWORK