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South Korean officials have stepped in to shore up support for the country’s financial markets as investors brace for political uncertainty following President Yoon Suk-yeol’s failed attempt to impose martial law.
Kim Byung-hwan, head of the country’s top financial regulator, said the government was ready to activate the Won10tn ($7.1 billion) stock market stabilization fund and the Won40tn bond market stabilization fund if needed.
The benchmark Kospi index closed up 1.4 percent on Wednesday, having previously fallen as much as 2.3 percent. The South Korean won was unchanged against the dollar.
“We will closely monitor the stability of foreign currency financial institutions and respond to risks such as margin requirements caused by rising exchange rates by providing foreign currency liquidity through securities financing,” Kim said.
He urged institutions such as the stock exchange to focus on stabilizing investor sentiment. “Given the increased volatility of the market, even small incidents can increase anxiety,” he added.
Markets were headed for a tougher day of trading, with it falling nearly 3 percent to a two-year low and shares of South Korean companies listed in the U.S. slumping overnight. Asian markets were closed throughout as Yun imposed and later lifted martial law.
Steel maker Posco and retailer Coupang fell more than 7 percent in New York immediately after Yun’s initial announcement, before closing down about 4 percent.
Kim’s comments came in the heat of the moment calls for Yun’s impeachment are growing after his failed attempt to impose martial law triggered the country’s worst constitutional crisis in decades.
A successful impeachment of the opposition parties that control parliament would trigger snap elections and prolong political uncertainty in Asia’s fourth-largest economy.
There was a muted market reaction YunMartial law is being prepared to be imposed, said Thomas Matthews, head of Asia-Pacific markets at Capital Economics.
Some energy stocks fell, reflecting worries that a successful impeachment could lead to an election and victory for opposition leader Lee Jae-myung, whose party has been skeptical of nuclear power.
“Nuclear energy stockpiles were broken today,” said Sanjiv Rana, head of Korea research at CLSA. The share price of Doosan Energy, which builds nuclear power plants, fell by more than 10%.
South Korean the stock increased lower compared to other markets in the country fought for reforms put an end to what some investors call “Korea discount“.
“A lot of bad news has already been evaluated. . . for what is otherwise a fairly stable, prosperous democracy,” Matthews said.
Bond prices were mostly flat, with the yield on two-year government debt rising 0.03 percentage point to 2.68 percent. The yield on the 10-year note rose 0.06 percentage point to 2.77 percent. Bond yields move inversely with prices.
Shares in Samsung Electronics, South Korea’s most valuable company, fell 1 percent.
“At a time when Korea is looking to establish itself as a more established developed market in the eyes of investors, yesterday’s events may serve as a reminder that Korea can still behave like an emerging market,” said Mark Dowding, director of investments. employee of the fixed income department of RBC BlueBay Asset Management.
Analysts echoed those sentiments, saying the developments heaped uncertainty on a country already dealing with slowing growth and potentially vulnerable to economic protectionism from the incoming US administration.
MUFG’s Lee Hardman said the developments “may have a longer-lasting impact on investor confidence in South Korea.
“The period of political instability comes at an unfortunate time as South Korea faces looming challenges, including the potential threat of higher tariffs from the US,” he added.
South Korea’s Finance Minister Choi Sang-mok said on Wednesday morning that the government would use “unlimited” liquidity to stabilize financial markets if necessary. The Bank of Korea’s monetary policy board held an emergency meeting and said it was “keeping all options open until markets stabilize.”
The central bank expanded the scope of market operations as it stepped up efforts to maintain liquidity and stability by increasing the number of securities eligible for open market operations.
It also launched irregular repurchase agreements to “broaden the supply of short-term liquidity” and increased the number of institutions authorized to trade repurchase agreements.
