South Korea’s financial markets experienced significant turbulence on Tuesday, grappling with the fallout from political chaos that unfolded in recent days. The turmoil prompted the Bank of Korea (BOK) to convene an emergency meeting, where officials laid out plans to enhance short-term liquidity and stabilize the foreign exchange market. This comes in the wake of a surprise martial law declaration by President Yoon Suk Yeol, which was swiftly overturned by the National Assembly, leading to the withdrawal of military units.
Trading commenced at the usual time of 9 a.m. KST, but the iShares MSCI South Korea ETF (EWY) faced a dramatic decline, plummeting as much as 7% to reach a 52-week low before closing the day down 1.6%. The fluctuations in stock prices reflect broader investor concerns over the political situation and its potential impact on the economy.
In response to the escalating crisis, South Korea’s financial regulator announced its readiness to allocate 10 trillion won (approximately $7.07 billion) to a stock market stabilization fund, should the need arise. Finance Minister Choi Sang-mok emphasized the government’s commitment to providing unlimited liquidity to financial markets if necessary, underscoring the urgency of stabilizing investor sentiment.
The BOK’s emergency meeting resulted in a series of measures aimed at alleviating the market’s distress. Following the meeting, the central bank confirmed it would boost short-term liquidity and implement strategies to support the foreign exchange market as required. This initiative is seen as a vital step to counteract the adverse effects stemming from last week’s decision to cut its benchmark interest rate by 25 basis points—a move that some analysts believe has contributed to recent market fluctuations.
As the situation continues to develop, analysts remain cautiously optimistic. “In our view, the negative impact to the economy and financial market could be short-lived as uncertainties on [the] political and economic environment could be quickly mitigated on the back of proactive policy response,” remarked analysts from Citi.
The emergency measures reflect an urgent attempt by both government and financial authorities to restore stability and confidence in South Korea’s markets. With the BOK planning an extraordinary board meeting at around 9 a.m. local time on Wednesday, further actions may soon be announced to address ongoing concerns.
Featured image courtesy of Bloomberg
