SINGAPORE (Reuters) – South Korean shares fell on Wednesday amid the country’s biggest political crisis in decades as lawmakers called for the impeachment of President Yoon Suk Yeol after he declared martial law, only to have the move reversed hours later to make.
The surprise statement late Tuesday shocked markets, triggering a sharp sell-off in all things South Korean. The currency hit a two-year low on Tuesday but stabilized on Wednesday. The benchmark Kospi Index lost almost 2%.
Here are some comments from market participants:
SAT DUHRA, PORTFOLIO MANAGER, ASIA DIVIDEND INCOME, JANUS HENDERSON, SINGAPORE
“The situation appears to be a political gamble that has not paid off. I have no intention of further enlarging Korea in this uncertainty. Despite the market being cheap and underperforming – which is usually a tempting factor for investors – there isn’t enough to see the stabilization gained.
“Investors have been wary of the so-called ‘Korea discount’ and this only reinforces sentiment. The prospects of an impeachment, the uncertainty of a leadership change and the generally unexciting macroeconomic outlook will deter foreign investors. I would rather add China against this backdrop introduces an additional layer of uncertainty, especially for exporters.”
DANIEL TAN, PORTFOLIO MANAGER, GRASSHOPPER ASSET MANAGEMENT, SINGAPORE
“In the longer term, the martial law episode would accentuate the ‘Korean Discount’ – an increased risk premium – in trading Korean assets, stocks, currencies and bonds. Reflective of the ‘Korean Discount’, the Korean stock benchmark KOSPI currently trades at 0.8 times its estimated one-year book value, while the MSCI World Index trades at almost three times higher. Investors could demand a larger risk premium if they want to invest in Won and Korean stocks.
“However, we are unlikely to see a prolonged sell-off in South Korea as long as the government and the Bank of Korea stick to their promise to provide ‘unlimited liquidity’.”
ROBERT CARNELL, REGIONAL RESEARCH HEAD, ASIA PACIFIC, ING, SINGAPORE
“Before this happened, we weren’t particularly bullish on the currency anyway, because the domestic demand story in Korea is so weak that we expected the BOK to have to do quite a bit of easing, despite being quite aggressive so far. recently.
“With this on top, we have an extra layer of uncertainty that only adds to the feeling that things won’t be very good. intervene today. You have to remember that if they see signs of abrupt weakness, they will get stuck in it.
“Uncertainty is clearly playing a role in financial markets and creating concerns, but we don’t think there is enough of it to lead to actual downgrades in government bond ratings.”
FRANCES CHEUNG, HEAD OF FX AND RATES STRATEGY, OCBC BANK, SINGAPORE
“The spike in USD/KRW represented a knee-jerk reaction.
‘The overall market reaction is considered contained, not least because martial law has been lifted.
“While potential currency interventions could also result in LHS flows on the currency swap curve depending on how the currency trades are executed, BOK also says it provides currency liquidity. On balance, we think liquidity will be supported.”
LINDA LAM, HEAD OF EQUITY ADVISORY, NORTH ASIA, UBP, HONG KONG
“The story of martial law appears to be a domestic political struggle rather than an escalation of conflict on the peninsula.
‘For the stock market, domestic upheavals generally have no lasting impact as long as the currency is broadly stable.
“Looking ahead, we maintain a cautious stance on emerging market equities, including Korean equities, primarily due to tariff and currency headwinds under the incoming Trump administration.”
DAVID CHAO, GLOBAL MARKET STRATEGIST, ASIA PACIFIC, INVESCO, SINGAPORE
‘The situation remains dynamic and evolving and markets may continue to experience volatility.
‘We believe that this development will be very short-lived and is unlikely to have any lasting impact on the economy and financial markets.
“We see any negative impact from this being offset by proactive policy responses from the government and central bank, which should of course be positive for markets, although upside potential could be limited due to lingering uncertainties.”
(Reporting by the Asian Markets Team; Editing by Sam Holmes)
