South Korean Shares Decline Amid Political Crisis

SINGAPORE (Reuters) – South Korean shares fell on Wednesday during the country’s largest political crisis in decades as lawmakers sought to impeach President Yoon Suk Yeol after his unexpected martial law declaration that was quickly retracted.

This surprising move jolted markets late on Tuesday, resulting in a pronounced selloff across South Korean assets, with the currency dropping to a two-year low before stabilizing the next day. The benchmark Kospi Index lost nearly 2%.

Market Comments

Sat Duhra, Portfolio Manager, Asia Dividend Income, Janus Henderson, Singapore

> "The situation appears to be a political gamble that has not paid off. I don’t plan to add to Korea in this uncertainty. Despite the market being cheap and underperforming—usually attractive for investors—there’s not enough to see the won stabilise."

> "Investors have been wary of the so-called 'Korea discount' and this only reinforces the sentiment. Prospects of impeachment, uncertainty from a leadership change, and an uninspiring macroeconomic outlook will deter foreign investors. I would rather invest in China against this backdrop. A Trump administration adds more uncertainty, especially for exporters."

Daniel Tan, Portfolio Manager, Grasshopper Asset Management, Singapore

> "In the long term, the martial law episode would enhance the 'Korean Discount'—an elevated risk premium—when trading Korean-related assets like equities, FX, and bonds. With Korea's equity benchmark KOSPI trading at 0.8 times projected book value compared to the MSCI World Index at around 3 times, investors may demand a higher risk premium for investing in the won and Korean stocks."

> "However, extended sell-offs in South Korea seem unlikely as long as the government and Bank of Korea continue their commitment to providing 'unlimited liquidity'."

Robert Carnell, Regional Head of Research, Asia-Pacific, ING, Singapore

> "Before these events, we weren't particularly optimistic about the currency due to weak domestic demand, anticipating the BOK would have to ease significantly, despite a previously hawkish stance.

> "With these developments, a layer of uncertainty adds to the grim outlook, and I wouldn’t be surprised if the BOK intervened in response to abrupt market weakness."

> "Uncertainty affects financial markets and creates concerns, but we don’t foresee substantial rating downgrades in sovereign bonds."

Frances Cheung, Head of FX and Rates Strategy, OCBC Bank, Singapore

> "The spike in USD/KRW was a knee-jerk reaction. Overall, market reactions are contained, particularly since martial law was lifted.

> "Potential FX interventions could impact flows along the FX swap curve, but we believe liquidity will be supported."

Linda Lam, Head of Equity Advisory, North Asia, UBP, Hong Kong

> "The martial law situation seems to stem from domestic political struggles rather than escalating peninsula tensions.

> "Generally, domestic upheavals do not have prolonged impacts on the stock market, especially when the currency remains stable. However, we are cautious about emerging market equities, including Korean stocks, due to tariff and currency challenges expected with the incoming Trump administration."

David Chao, Global Market Strategist, Asia Pacific, Invesco, Singapore

> "The situation is dynamic and markets may continue to be volatile. We believe this development will be a short-term blip likely to have a minimal lasting impact on the economy and financial markets.

> "Any negative effects will probably be mitigated by proactive governmental and central bank policies, beneficial for markets but with limited upside due to persistent uncertainties."