South Korea Vows Market Support Amid Political Crisis

Government and Central Bank Step In

South Korean officials have pledged significant support to stabilise the country’s financial markets following political turmoil triggered by President Yoon Suk Yeol’s failed attempt to impose martial law. The government has readied a W10 trillion ($7.1 billion) stock market stabilisation fund and a W40 trillion bond market stabilisation fund, aiming to reassure investors during this period of uncertainty.

Key Measures to Stabilise Markets

1. Financial Institution Support:
   The government is closely monitoring foreign exchange liquidity and addressing risks like margin calls caused by rising exchange rates.
2. Central Bank Actions:
   The Bank of Korea held an emergency meeting and expanded its operations to ensure market stability, including:

• Increasing securities eligible for open market operations.
• Conducting irregular repurchase agreements to supply liquidity.

Market Reactions

• Equities: The Kospi index fell 1.4%, with nuclear power stocks like Doosan Enerbility dropping over 10% amid fears of a leadership change.
• Currency: The won strengthened 1.2% against the US dollar, reflecting a muted reaction to the unfolding crisis.
• Bonds: Government bond yields showed minimal changes, suggesting relative stability in debt markets.

Broader Implications

South Korea’s political crisis has highlighted ongoing challenges, including what investors call the “Korea discount”—a reflection of underperformance relative to other markets. While the situation remains uncertain, analysts believe much of the negative sentiment is already priced in, maintaining confidence in South Korea’s stability as a wealthy democracy.

Source: (FT.com)