| In the early hours of Wednesday, December 4, after South Korean President Yoon Seok-yeol announced martial law in Seoul, protesters gathered outside the National Assembly.
South Korean assets have been 'targeted' by short-sellers.
South Korean President Yoon Suk-yeol publicly announced the implementation of martial law, only to overturn the decision three hours later, bringing a hasty conclusion. However, the media is filled with tumultuous images that attract attention, indicating that this chaos will not end here.
1. The initial headline caught global markets off guard: The early reaction from the markets was very swift, with the iShares MSCI South Korea ETF dropping as much as 7.1% in U.S. trading, and Samsung Electronics' shares listed in London falling by as much as 7.5%. The Korean won dropped 2.9% during New York trading hours, performing the worst in the foreign exchange market. Meanwhile, investors flocked to U.S. Treasury bonds and gold as safe havens.
2. Many believe that the event has passed (Korean risks have been alleviated) and that this is a domestic issue in South Korea rather than an international conflict, so its impact on the global market will not be lasting. However, it should be noted that the Japanese yen is a beneficiary of the political turmoil in South Korea, as the rise of the yen has weakened the dollar, reversing its gains earlier in the week. If the dollar index continues to decline, this event could be termed a 'turning point event.'
3. The martial law in South Korea has been lifted, and all markets will open as normal. The South Korean bond market, stock market, and won will become the focus for global investors, and shorting the won may become a profitable trade. Policymakers like to control the won, and after yesterday's significant volatility, some easing in volatility is expected, but the crisis will not just pass like that. Given the ongoing instability in South Korea, the financial market cannot remain calm. Protests are expected to intensify in the coming hours.
4. In terms of the financial markets, South Korea has also entered a state of heightened alert. The Bank of Korea will hold a committee meeting at 09:00 local time to calm traders' sentiments. The South Korean government stated that it will implement all possible financial and foreign exchange market stabilization measures, including unlimited liquidity injections, as necessary. Although the immediate response to the Korean martial law is mainly confined to local assets, investors still need to pay attention to its impact on global markets due to the country's extensive trade relations.