(Bloomberg) — South Korean President Yoon Suk Yeol’s surprise decision to impose martial law in South Korea for the first time in more than four decades — and then just as quickly reverse course — led to whiplashed the country’s foreign-traded assets and took global markets by surprise, at one point driving U.S. Treasury yields lower as traders sought refuge from potential instability.
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In a live emergency address to the nation, Yoon stunned voters, lawmakers and investors by declaring martial law on Tuesday after accusing the opposition of trying to paralyze his government.
The decision, Yoon said, was made to protect freedom and the constitutional order, but the market’s initial judgment was swift: South Korean ETFs, the currency and the most actively traded stocks have all weakened sharply, while US government bonds and even Bitcoin also fell in value for a short time. caught up in a risky flight to quality.
Korean stocks and the won subsequently regained some lost ground after South Korean authorities pledged to provide “unlimited liquidity” to markets if needed, and lawmakers voted to call for the shock measure to be lifted, which Yoon ultimately agreed to agreed. Still, the move, however brief, created new uncertainties within a major economy and pillar of global trade, leaving investors on edge.
“This will clearly raise concerns about investing in Korea in the longer term,” said Mark Ledger-Evans, investment analyst at Ninety One UK Ltd. “A higher risk premium will be needed.”
The iShares MSCI South Korean exchange-traded fund (EWY) fell as much as 7.1% in US trading, while London-listed shares of Samsung Electronics lost as much as 7.5%. The country’s Korean won weakened as much as 2.9% to 1,444.65 per dollar, leading to losses in currency markets in thin trading during the New York session.
“Domestic uncertainty is adding to external pressure in recent weeks as the market begins to price in the rise of higher U.S. rates under the new Trump administration,” said Aroop Chatterjee, a strategist at Wells Fargo in New York.
Trading volume for the $3.9 billion iShares MSCI South Korea ETF hit a record for any full day in the fund’s more than 20-year life. About 32 million shares were trading as of 1:45 p.m. in New York, about 17 times the 20-day average for this time of day.
Other South Korean side effects also declined. E-commerce company Coupang Inc. fell as much as 9.8% in US trading, alongside losses at steel processor Posco Holdings Inc. and KB Financial Group Inc. The Korea Exchange, the country’s main stock exchange, said on Wednesday it was reviewing trading.
