South Korea’s markets vulnerable after weekend of political stalemate
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A protestor wearing a face mask of South Korean President Yoon Suk Yeol in a rally calling for his impeachment in Seoul, South Korea, on Dec 8.
PHOTO: REUTERS
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SEOUL – Traders are bracing for a period of sustained volatility in South Korean assets as markets reopen on Dec 9, with the won and stocks seen under initial pressure after a weekend of high drama deepened the political crisis.
Trading desks are assessing a possibility of a prolonged stalemate after Dec 7’s impeachment motion against President Yoon Suk Yeol failed.
Opposition lawmakers slammed the decision as unconstitutional and thousands took to the streets to protest.
The opposition parties, which together control a majority in parliament, have said they will push quickly for another impeachment vote.
The South Korean currency has crept lower in the days following Mr Yoon’s shock declaration of martial law on Dec 3, a decision he reversed within hours after parliament unanimously rejected it.
“Had the impeachment motion gone through on Saturday, it would have been over, but Yoon still has control over the military,” said Mr Seo Sang-Young, a market strategist at Mirae Asset Securities. “The ruling party’s boycott will only prolong the domestic uncertainty.”
That means volatility will increase, he added, with the market reacting differently by industry. Domestic demand needs an inflow of tourists, and with the tourism balance already negative, this could make things worse, he noted.
Chinese tourists visiting South Korea could drop by 19 per cent to 830,000 in the first quarter of 2025 from a year ago on fears of social unrest following the brief imposition of martial law. Such concerns may linger through the Chinese New Year break, according to a Bloomberg Intelligence report.
South Korea’s currency, which regained some ground after plunging on Dec 3, briefly dipped again on Dec 6 when a local newspaper reported Mr Yoon may reimpose martial law. It was the worst performing in Asia last week, down almost 2 per cent against the US dollar.
“While the martial law declaration has proved short-lived, the won remains weaker than pre-announcement levels and vulnerable to a further drop,” wrote strategists at Barclays. “With the situation remaining highly fluid, the won may remain volatile in the short term.”
The Kospi equity benchmark has fallen 2.9 per cent since the short-lived martial law decree, with significant intra-day swings on Dec 6 as traders weighed each political development.
“This political instability will have different impacts on different sectors,” said Mr Jung In Yun, chief executive at Fibonacci Asset Management Global, who expects the drama to persist throughout next year. “Exporting companies will likely rebound soon.”
“Investors will focus on corporate earnings for the next quarter and assess the impact of the weaker won,” he added. “The Kospi will likely rebound in late December as investors start to segregate political and market issues.”
Finance Minister Choi Sang-mok said South Korea will deploy all available measures to deal with the fallout from the political crisis. He said at a media briefing on Dec 8 that the ministry has been cooperating with the Bank of Korea to take pre-emptive measures to respond to volatility in financial and foreign-exchange markets.
Intervention could reduce immediate losses for the won, said Mr Sean Callow, senior FX analyst at Intouch Capital Markets in Singapore.
“There is likely to be some disappointment over the failed impeachment vote” despite Korean authorities’ efforts to calm investor nerves, he added. “Markets will fear political paralysis so long as Yoon holds on and the PPP protects him from impeachment.”
Mr Callow said the underlying trend for the won is still on the downside because of risks linked to the incoming Trump administration’s vow to impose sweeping tariffs.
The won was 0.5 per cednt weaker against the dollar at the close on Dec 6, before the failed impeachment attempt. BLOOMBERG
