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 regulators have all spoken out, hoping to stabilize the financial markets.

Latest Developments in South Korea’s Political Situation

Affected by the release and lifting of emergency martial law orders by President Yoon Suk Yeol, on the morning of the 4th, a group of senior staff members from the Blue House with titles of chief secretary and above collectively submitted their resignations. That same morning, the head of the Blue House’s Secretarial Office, Jeong Jin-suk, chaired a meeting of the chief secretaries, and all staff members with the rank of chief secretary and above expressed their intention to resign.

On the 4th, the leadership of the ruling People Power Party held a closed-door highest committee meeting at the National Assembly. Kim Jong-heok, the highest-ranking member of the People Power Party, told the media that the meeting discussed options such as President Yoon Suk Yeol resigning from the party and the entire cabinet resigning, in order to hold Yoon Suk Yeol accountable for issuing the emergency martial law order.

On the 4th, South Korea’s largest main opposition party, the Democratic Party, held an emergency meeting of lawmakers at the National Assembly and issued a resolution, saying that President Yoon Suk Yeol should immediately and voluntarily resign. The resolution emphasized that Yoon Suk Yeol’s announcement of emergency martial law violates the Constitution and does not meet any of the conditions necessary for issuing an emergency martial law order. If he does not voluntarily resign, 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, constitutes a serious act of internal unrest, and is sufficient grounds for impeachment.

According to Yonhap News Agency, on December 4, six South Korean opposition parties submitted an impeachment bill against Yoon Suk Yeol at 14:40 local time.

Market Turmoil, With the Government Rushing to Stabilize

On Wednesday, the Korea Composite Index opened lower in Seoul and at one point fell 2.3%. KB Financial Group at one point fell more than 7%, Kookmin Bank fell 6%, and Samsung Electronics and SK Hynix fell more than 2%. By the close, the Korea Composite Index fell 1.44%, and the 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-cap Korean companies, plunged 7% to a 52-week low, and ultimately closed down 1.6%.

In the foreign exchange market, the won’s fluctuations against the U.S. dollar have not been large. As of the time this reporter’s text was published, 1 U.S. dollar was 1411.19 won. However, since October this year, the won against the U.S. dollar has continued to depreciate. In early October, 1 U.S. dollar was 1302.94 won. So far, the depreciation has exceeded 4%.

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

Financial Services Commission Chairman Kim Byoung-hwan said that South Korea will take every possible measure to prevent financial market stress from spreading and to ensure the market operates normally and steadily. South Korea will be ready so that market-stabilizing measures can be taken immediately; for example, a stock market stabilization fund of 100 trillion won (about USD 7.07 billion) can be used immediately. In the bond market and capital markets, it will make maximum use of a bond market stabilization fund with a size of 40 trillion won, as well as the plan to purchase corporate bonds and commercial paper (CP). In the foreign exchange market, South Korea will prepare for additional margin risks caused by exchange rate increases. He also asked financial company associations to encourage financial companies to ensure sufficient foreign exchange liquidity, and asked the Korea Exchange and other relevant authorities to prevent any actions that could disrupt the market.

The Bank of Korea held a special board meeting at around 9:00 a.m. Korean time. At the meeting, it said it will sell two-year currency stabilization bonds with a yield of 2.690%. It will loosen the collateral policy in repurchase operations to ease any tension in the bond market. It will increase short-term liquidity and, when necessary, take measures to stabilize the foreign exchange market.

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

However, at a press conference, Park Jongwoo, the vice governor of the Bank of Korea, said 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 held a meeting on Wednesday morning. South Korean Finance Minister Choi Sang-muk said that South Korea will set up a team that operates continuously, 24 hours a day, to monitor the market, and will do everything possible to quickly resolve economic uncertainty after this turmoil, working to ensure that the economy and people’s lives are not affected. Earlier that day, South Korean Minister of Finance Choi Sang-muk pledged that when necessary, the South Korean government will take all possible measures to stabilize the financial market. He said: “We will mobilize every possible financial and foreign exchange market stabilization measure, including injecting liquidity in unlimited quantities.”

According to Yonhap News Agency, South Korea’s financial regulators have already prepared to allocate 100 trillion won (about RMB 51.419 billion) to the stock market stabilization fund at any time.

Proofread by: Yang Linlin

(Editor in charge: Guo Jiandong)

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