(Bloomberg) — South Korean stocks tumbled and the won neared its weakest point since 2009 after a weekend of political turmoil that left investors bracing for a period of heightened volatility.
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The Kospi index fell as much as 2.3%, and the small-cap Kosdaq index fell more than 4% to its lowest level since April 2020. The won fell about 1% against the dollar, heading for levels reached in the immediate aftermath of President Trump. Yoon Suk Yeol’s failed imposition of martial law early last week.
Investors risk a prolonged stalemate after Saturday’s impeachment motion against Yoon failed. The main opposition party has said it will quickly push for a new vote. While officials in Seoul are pulling out all the stops to avoid a market crisis, uncertainties over the country’s leadership have roiled sentiment.
“The probability of the worst-case scenario for the Kospi has increased,” said Lee Kyoung-Min, strategist at Daishin Securities Co. “Even with a small development, the Kospi can wobble due to built-up fatigue, disappointments and extremely dented investors. sentiment and supply and demand situations.”
With Yoon under intense pressure to resign, ruling People Power Party leader Han Dong-hoon said on Sunday that Prime Minister Han Duck-soo will manage the country’s affairs while his party prepares an orderly exit plan for the president.
Opposition lawmakers labeled the decision unconstitutional and thousands took to the streets to protest.
The impasse could not have come at a worse time for local markets. The Kospi gauge and the won were among Asia’s worst performers this year, even before the martial law fiasco.
Investors pinned their hopes on the country’s leadership to deal with an uncertain global trade environment following Donald Trump’s election victory. The ‘Value-Up’ initiative – a program to improve corporate governance and shareholder returns – also needed a stronger boost to revive the weak stock market.
While top economic and financial officials meet almost daily to ease financial nerves, there is a big question about who is in charge of Korea.
“In addition to the prospect of a protracted constitutional crisis, markets will face uncertainties related to the legality of the new arrangement proposed by the ruling party and the government’s ability to effectively deal with the incoming government Trump,” said Homin Lee. , senior macro strategist at Lombard Odier.
Financial authorities will mobilize “all possible measures” to minimize the impact on the economy and will closely monitor financial markets 24 hours a day, according to a joint ministerial statement on Monday morning. They plan to launch a 300 billion won ($209 million) fund next week to buy “value-up” stocks to help support the market, while continuing to deploy the previous 200 billion won fund.
The 10 trillion won stock stabilization fund is ready to be mobilized “immediately” when necessary, the statement said.
While the fund will try to turn investor sentiment, its size will not be enough to quell market fears, said Jung In Yun, CEO of Fibonacci Asset Management Global Pte.
Korea’s currency has fallen in value in the days following Yoon’s shock declaration of martial law on Tuesday, a decision he reversed within hours after parliament unanimously rejected it.
The won has lost more than 2% against the dollar as the political drama unfolded, the only emerging Asian currency to fall against the dollar. Further losses will cause the currency to reach levels not seen since 2009.
Goldman Sachs Group Inc. said it maintains a 1.8% growth forecast in 2025 below the consensus for Korea, with “risks increasingly tilted to the downside,” according to a note from economists including Goohoon Kwon.
The weakening pressure on the won could be eased by a rebalancing of the National Pension Service’s portfolio toward underweight domestic securities versus foreign assets, she added.
–With help from Matthew Burgess and Winnie Hsu.
(Updates with latest market movements, new comments)
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