South Korea vows market support in wake of turmoil

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South Korean officials have stepped in to shore up support for the country’s financial markets, as investors braced for political uncertainty after President Yoon Suk Yeol’s failed attempt to impose martial law.

Kim Byung-hwan, head of the country’s top financial regulator, said the government was ready to activate a Won10tn ($7.1bn) stock market stabilisation fund and a Won40tn bond market stabilisation fund if needed.

The benchmark Kospi index closed down 1.4 per cent on Wednesday, having earlier fallen by as much as 2.3 per cent. South Korea’s won was flat against the dollar.

“We will closely monitor the foreign exchange soundness of financial institutions and respond to risks, such as margin calls triggered by rising exchange rates, through foreign currency liquidity provision via securities financing,” Kim said.

He urged institutions such as the stock exchange to focus on stabilising investor sentiment. “Given the heightened market volatility, even small incidents can amplify anxiety,” he added.

Markets had been on course for a more difficult day of trading with the won tumbling nearly 3 per cent to a two-year low and US-listed shares in South Korean companies tumbling overnight. Asian markets were closed throughout the hours in which Yoon instituted and then lifted martial law.

Steelmaker Posco and retailer Coupang fell by more than 7 per cent in New York immediately after Yoon’s initial announcement before closing down around 4 per cent.

Kim’s comments came amid mounting calls for Yoon’s impeachment after his failed attempt to impose martial law triggered the country’s worst constitutional crisis in decades.

A successful impeachment by opposition parties that control parliament would trigger a snap election and prolong political uncertainty in Asia’s fourth-largest economy.

The muted market reaction reflected Yoon’s about-turn on martial law, said Thomas Matthews, head of Asia Pacific markets at Capital Economics.

Some energy stocks fell, reflecting anxiety that a successful impeachment could result in an election and victory for opposition leader Lee Jae-myung, whose party has been sceptical on nuclear power.

“Nuclear power stocks were smashed today,” said Sanjeev Rana, head of Korea research at CLSA. Shares of Doosan Enerbility, which builds nuclear power plants, dropped more than 10 per cent.

South Korean equities have underperformed relative to other markets as the country has struggled to roll out reforms to end what some investors call the “Korea discount”.

“There’s a lot of bad news already priced in . . . for what is otherwise a pretty stable, wealthy democracy,” Matthews said.

Bond prices were largely stable, with yields on two-year government debt rising 0.03 percentage points to 2.68 per cent. Yields on 10-year bonds edged up 0.06 percentage points to 2.77 per cent. Bond yields move inversely to prices.

Shares of Samsung Electronics, South Korea’s most valuable listed company, were down 1 per cent.

“At a time when Korea has been seeking to establish itself as a more established developed market in the eyes of investors, events yesterday serve as a reminder, perhaps, that Korea can still behave like an emerging market,” said Mark Dowding, chief investment officer for fixed income at RBC BlueBay Asset Management.

Analysts echoed the sentiment, arguing that the events had piled uncertainty on to a country already dealing with slowing growth and potentially exposed to economic protectionism from the incoming US administration.

MUFG’s Lee Hardman said the events “could have a more lasting impact on investor confidence towards South Korea.

“The period of political instability comes at a bad time when South Korea is facing looming challenges including the potential threat of higher tariffs from the US,” he added.

South Korea’s finance minister Choi Sang-mok said on Wednesday morning that the government would deploy “unlimited” liquidity to stabilise financial markets if needed. The Bank of Korea’s monetary policy board held an emergency meeting and said it was “keeping all options open until the markets stabilise”.

The central bank expanded the scope of market operations as it intensified attempts to maintain liquidity and stability, increasing the number of securities eligible for open market operations.

It also began irregular repurchase agreements to “expand short-term liquidity supply” and increased the number of institutions eligible to trade repurchase agreements.