Visitors look at screens at the headquarters of the Korea Exchange (KRX) in Seoul, South Korea, on Wednesday, December 4, 2024.
Bloomberg | Bloomberg | Getty Images
A phenomenal one A political drama That is likely to compound the already gloomy outlook for Asia’s fourth-largest economy in South Korea, analysts say, although some see reason to be more optimistic if a deeper crisis can be avoided.
Yoon Suk Yeol, President of South Korea Suddenly announced the plans North Korea to impose an emergency period of martial law on Tuesday evening, citing the need to protect the country from “communist forces” and eradicate “anti-state forces”.
The shock declaration was widely seen as a response to domestic pressures Reversed Just hours later. Yoon’s decision to reverse the order came after roughly 200 lawmakers forced the National Assembly to vote unanimously to block the move.
The political whip South Korea, a key US ally and a critical link in international supply chains, has drawn global attention and Battered financial markets.
US-listed Korean stocks fell sharply Yun’s early martial law order, as well South Korea won Versus fell to a two-year low US dollars. The currency recovered most of its losses.
Shortly before markets opened on Wednesday, Vice Minister of Economy and Finance Kim Byung-hwan said the regulator was ready to deploy 10 trillion won ($7.06 billion) to stabilize the stock market “at any time,” South Korea’s Yonhap News Agency reported. Reported.
South Korea’s Kospi Index is closed It was down 1.44% on Wednesday, paring losses of 2% earlier in the day as opposition lawmakers was started Impeachment proceedings against Yoon.
“For now we have a more relaxed situation, but given how important South Korea is to the global supply chain this remains a story to keep on our radar,” Deutsche Bank strategists said in a research note published on Wednesday.
What’s Next for Korean Stocks?
Jonathan Garner, Chief Asia and EM Equity Strategist Morgan StanleyThe Wall Street bank is underweight in Korean stocks, he told CNBC’s “Street Science Asia” on Wednesday.
“Our view on the Korean market is that it is not well-positioned in the global economic slowdown and is one of the more trade-exposed markets and geographies, especially with all the tariff and non-tariff issues we cover.” Garner said.
“However, the semiconductor cycle is starting to shape up in trouble, as well as the auto sector has weakened quite a bit globally – and they are over-represented in the Korean market,” he continued.
“Prior to these latest events our economists were expecting growth of less than 2% for Korea next year, one of the biggest declines we’ll see globally.”
Shares of South Korea’s biggest tech giant Samsung fell 1% on Wednesday, while battery maker LG Energy Solutions and automaker Hyundai Motor lost 2.8% and 2.4%, respectively.
Rory Green, chief China economist and head of Asia research at TS Lombard, said in a research note published on Wednesday that negative price action and volatility are likely to continue in Korean assets and interconnected markets, particularly in Asian foreign exchange markets.
South Korea’s win saw the greenback last trade flat at 1,414.22 against the greenback, which fell to 1,444.93 on Tuesday – its weakest level since October 2022, according to LSEG data.
Trinh Nguyen, senior economist at Natixis, described Yun’s push to declare martial law as a “very, very poor decision” and hit South Korea at a bad time.
“Martial law has not been introduced since 1979 and has been seen as deeply negative. So, its reversal has been positive. However, it has introduced a lot of political uncertainty moving forward, particularly the fate of President Yoon,” Nguyen told CNBC. “Squawk Box Asia” on Wednesday.
“It’s not a positive time for South Korea, right? October exports are in contraction, (the Bank of Korea) has to cut rates (and) the chip cycle is in decline as you can see domestic demand is weak,” she continued.
“So, we need a really strong government to have a budget that has fiscal support, not only in the short term but also in the long term to deal with the challenges from China, but also from potential tariffs,” Nguyen said.
Investor sentiment may change for the better
Not everyone was downbeat on the market implications of South Korea’s unfolding political drama.
“For starters, new reports are now suggesting Yoon will be impeached or resign, helping investors draw a further line under the business,” Thomas Matthews, head of Asia Pacific markets at Capital Economics, said in a research note. A note published on Wednesday.
“Presidential impeachments are not unprecedented in Korea, and the country’s equities, in the most recent period in 2016/2017, finally performed well,” he said.
South Korean President Yoon Suk-yeol is seen speaking during a televised news broadcast at a train station in Seoul, Dec. 3, 2024, after he declared emergency martial law, saying the move was necessary to protect the country from “communist forces.” Amid the wrangling of Parliament over the Budget Bill.
Anthony Wallace | Afp | Getty Images
While Matthews acknowledged that chaos will come at a challenging time for South Korea, the Capital Economics team said there are few reasons to be more optimistic until a deeper crisis is avoided.
“Korea’s big tech companies generally benefit from the current excitement about AI and technology more broadly. So if investor sentiment on the country finally turns for the better, we think it could do so very sharply,” Matthews said.
“But there’s too much water to flow under the bridge first,” he said.
