South Korean stocks plunged on Monday, with the won trading near a 15-year low against the dollar, as sentiment soured after President Yoon Seok-yeol's failed attempt to impose martial law last week sparked concerns about a government power vacuum.
The Korean won depreciated sharply against the US dollar to its lowest level since October 2022. The South Korean Stock Exchange Index (KOSDAQ) plunged 5% during the day, and the South Korean KOSPI index fell 2.6%, hitting a new low in more than a year.
Investors and South Korean businesses are concerned that Yoon's position could be plunged into prolonged uncertainty. Yoon survived impeachment over the weekend but his allies have said they are seeking an "orderly exit" from the presidency. "No one is clearly in control of the situation at this point," said Andrew Gilholm, director of Korea analysis at geopolitical risk consultancy Control Risks.
Goldman Sachs analysts stated in an investor report released on Monday that 'the most likely scenario seems to be an orderly transition to an early presidential election.' However, they also noted that 'clearer timelines, scope, and specific details of the transition arrangements are needed.'
After Yoon Suk-yeol triggered the 'martial law storm,' Bank of Korea Governor Lee Chang-yong promised to provide necessary liquidity to prevent a severe impact on the market of the fourth-largest economy in Asia. Park Jong-hoon, head of Korea research at Standard Chartered Bank in Seoul, stated that investors 'are worried but not in a panic,' with the sell-off mainly driven by local retail investors concerned about domestic political turmoil.
He also pointed out that many foreign institutional investors have reduced their investment positions in South Korea after Trump’s election due to expectations that the protectionist trade policies of U.S. President-elect Trump will hurt South Korea's export-oriented economy. However, Park Jong-hoon added, 'Considering that South Korean stocks have been severely undervalued, many investors may be reluctant to sell further, especially in light of the South Korean financial authorities' determination to address such events, as they did during the COVID-19 pandemic and past impeachment crises.'
Citigroup economists Kim Jeon-wook and Choi Joo stated that the heightened long-term political uncertainty surrounding the impeachment case of South Korean President Yoon Suk-yeol could weaken overall economic confidence as well as discretionary spending. They mentioned that if the South Korean legislature fails to pass the 2025 national budget by December, the likelihood of the Bank of Korea continuing to cut interest rates in January would increase. They also added that developments in the political situation could lead to more capital outflows and pose upward risks to the USD/KRW exchange rate.
Although ruling party lawmakers currently do not support the impeachment of Yoon Suk-yeol, this is unlikely to quell the challenges he faces. Strong public protests and the opposition party doubling down on efforts to impeach the president may increase the likelihood of 'defections' among members of the president's People Power Party. The Korean National Police Agency confirmed on Monday that it is considering implementing exit restrictions on Yoon Suk-yeol. The political deadlock may temporarily prevent the passage of significant policies, which could affect consumer and business confidence.
Prime Minister Han Deok-soo and Han Dong-hoon, leader of the conservative 'People Power Party' to which Yoon Suk-yeol belongs, stated that they would cooperate to handle operational affairs related to 'national governance.' However, they did not elaborate on how this arrangement would work in practice, nor did they provide a timeline for Yoon Suk-yeol's resignation. Opposition party leaders and many analysts believe that this arrangement lacks constitutional basis.
Han Dong-hoon stated in remarks made after meeting with Han Deok-soo on the 8th that they would orderly advance the early end of the presidential term, and President Yoon Suk-yeol would no longer participate in national affairs including diplomacy before stepping down. That afternoon, when asked by reporters whether the president's exclusion from duties includes military command, Han Dong-hoon said, 'I think it is the same. Including diplomacy.'
On the morning of the 9th, South Korea's Ministry of National Defense spokesman Jeon Ha-kyu stated at a regular press briefing that the command authority of the South Korean military is still held by President Yoon Suk-yeol. According to Yonhap News Agency, Jeon Ha-kyu, in response to questions about 'who currently holds the command authority of the national military' and 'whether suspects of treason can possess command authority,' said, 'Legally, the command authority is currently in the hands of the president.'
South Korea's largest opposition party, the Democratic Party, submitted a proposal for the 'Yoon Suk-yeol Internal Turmoil Special Prosecution Law' and a proposal regarding the president's wife, the 'Kim Geon-hee Special Prosecution Law,' to the National Assembly on December 9th local time. The Democratic Party proposed that a special prosecution should investigate all doubts related to the emergency martial law declared by Yoon Suk-yeol.
In the proposal of the Democratic Party, the investigation into this emergency martial law incident will be led by one person each recommended by the Director of the Court Administration, the President of the Korean Bar Association, and the President of the Korean Association of Law Professors, with no intervention from political parties or the National Assembly. The Democratic Party has also submitted the 'Kim Geon-hee Special Prosecution Law' for the fourth time. Previously, the 'Kim Geon-hee Special Prosecution Law' was passed three times at the National Assembly plenary session but was returned to the National Assembly due to Yoon Suk-yeol exercising veto power and was abolished by a two-vote margin at the plenary session on the 7th.
Article forwarded from: Jin Shi Data