Impeaching the president causes a huge shock to the Korean stock market! The Bank of Korea and the Ministry of Finance step in to stabilize the market.

Political instability in South Korea is having an extremely negative impact on the capital markets, and South Korea’s financial authorities have all spoken out, hoping to stabilize the financial markets.

Latest Developments in South Korea’s Political Situation

Affected by the issuance and subsequent revocation of emergency martial law orders by South Korean President Yoon Suk Yeol, the senior aide team above the level of chief secretary at the Blue House collectively submitted their resignations on the morning of the 4th. On the morning of the same day, the head of the Blue House secretariat, Jeong Jin-soo, chaired a meeting of chief secretaries, and all aides above the chief secretary level stated their intention to resign.

On the 4th, the leadership of the ruling People Power Party held a closed-door supreme committee meeting in the National Assembly. Kim Jong-heok, the highest-ranking member of the People Power Party, told the media that the meeting discussed options including measures related to President Yoon Suk Yeol’s leaving the party and the resignation of the entire cabinet, in order to hold Yoon Suk Yeol accountable for issuing the emergency martial law decree.

On the 4th, South Korea’s largest opposition party, the Democratic Party, held an emergency meeting of lawmakers in the National Assembly and issued a resolution stating that President Yoon Suk Yeol should immediately resign on his own initiative. The resolution emphasized that Yoon Suk Yeol’s declaration of emergency martial law violated the Constitution and that he did not meet any of the conditions necessary for issuing the emergency martial law order. If he does not resign on his own, the Democratic Party will proceed with impeachment. The resolution also said that declaring emergency martial law is an invalid act that seriously violates the Constitution and laws, and constitutes a serious act of internal unrest—therefore providing sufficient grounds for impeachment.

According to Yonhap News Agency’s December 4 report, the six opposition parties in South Korea submitted an impeachment bill targeting Yoon Suk Yeol at 14:40 local time.

Market Turmoil, Emergency Government Bailout

On Wednesday, the Korea Composite Index opened lower in Seoul and at one point fell 2.3%. KB Financial Group fell by more than 7% at one point, Kookmin Bank fell 6%, and Samsung Electronics and SK hynix both fell by more than 2%. By the close, the Korea Composite Index was down 1.44%, and KOSDAQ fell 1.98%.

Meanwhile, during last night’s U.S. stock trading session, iShares MSCI Korea ETF (EWY), which tracks more than 90 large and mid-sized companies in South Korea, plunged 7% to a 52-week low and eventually closed down 1.6%.

In the foreign exchange market, the won’s fluctuation against the U.S. dollar was not large. As of the time of the reporter’s dispatch, 1 U.S. dollar was worth 1411.19 won. But since October this year, the won against the U.S. dollar has continued to depreciate. In early October, 1 U.S. dollar was worth 1302.94 won. So far, the depreciation has exceeded 4%.

Amid turmoil in the financial markets, multiple ministries in South Korea—including the Bank of Korea, the Financial Services Commission, and the Ministry of Economy and Finance—on Wednesday, around the time of the opening of the South Korean stock market, issued a series of emergency market-stabilization measures. The South Korean government even claimed that it would provide “unlimited liquidity” to stabilize the market when necessary.

Financial Services Commission Chairperson Kim Byoung-hwan said that South Korea will take every possible measure to prevent market anxiety from spreading and to ensure normal and stable operation of the markets. South Korea will be ready so that market stabilization measures can be taken immediately; for example, the stock market stabilization fund of 10 trillion won (about $7.07 billion) can be used immediately. In the bond market and capital markets, the government will activate to the maximum extent the bond market stabilization fund totaling 40 trillion won, as well as the bond and commercial paper (CP) purchase plan. In the foreign exchange market, South Korea will prepare for additional margin risks caused by exchange rate increases. He also asked industry associations to encourage financial companies to ensure sufficient foreign exchange liquidity, and required the South Korean exchanges and other relevant authorities to prevent actions that could disrupt the market.

The Bank of Korea held a special board meeting at around 9:00 a.m. South Korea time. At the meeting, it said it would sell two-year monetary stabilization bonds with a yield of 2.690%; it would ease collateral policies in repo operations to relieve any tension in the bond market; it would increase short-term liquidity and, when necessary, take measures to stabilize the foreign exchange market.

In a statement released after the meeting, the Bank of Korea said that if needed, it would also provide any special loans and inject funds into the market. The Bank of Korea said: “As announced together with the government, we will provide sufficient liquidity within a certain period of time until the financial and foreign exchange markets are stabilized.”

However, Bank of Korea Deputy Governor Park Jongwoo said at a press conference that, at today’s special meeting, Bank of Korea officials did not discuss policy interest rates. Just last week, the Bank of Korea unexpectedly cut the benchmark interest rate by 25 basis points.

The Ministry of Economy and Finance also convened a meeting on Wednesday morning. South Korea’s finance minister Choi Sang-mok said that South Korea will form a 24-hour, nonstop operating team to monitor the market and will do everything possible to quickly resolve the economic uncertainties after this turmoil, striving to ensure that the economy and people’s lives are not affected. Earlier that day, Finance Minister Choi Sang-mok pledged that when necessary, the South Korean government will take all possible measures to stabilize the financial markets. He said: “We will mobilize all possible financial and foreign exchange market stabilization measures, including an unlimited injection of liquidity.”

According to Yonhap News Agency, South Korea’s financial regulators have already prepared to allocate 10 trillion won (about 100k yuan) from the stock market stabilization fund at any time.

Proofread by: Yang Linlin

(Editor in charge: Guo Jiandong)

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