South Korean stocks and the country’s currency were rattled on Wednesday, prompting officials to pledge “unlimited” support to markets after a tense night during which President Yoon Suk Yeol declared and then lifted martial law.
The benchmark Kospi index fell 1.4 percent, recovering somewhat from a deeper loss earlier in the day. Big banks were hit particularly hard, and an index tracking the financial sector dropped about 4 percent, a reflection of general economic unease. Shares of some of South Korea’s biggest companies were also down, with Samsung Electronics losing 1 percent and Hyundai Motor shedding more than 2 percent.
South Korea’s stock market was already among the worst-performing in the world. It has fallen more than 7 percent this year, a sharp contrast to many major indexes, in Asia and elsewhere, that have posted double-digit gains.
After a steep drop overnight, the won rose as policymakers pledged to support the currency. On Wednesday it was trading down by less than 1 percent against the dollar since the initial declaration of martial law late Tuesday night.
The South Korean won has also been one of the weakest currencies in Asia in recent months, down more than 8 percent against the dollar this year.
South Korea’s finance minister, Choi Sang-mok, convened a meeting in Seoul with officials from the central bank and key financial regulators within an hour of martial law being declared. They pledged to meet daily and provide “unlimited liquidity support” until the stock, bond and currency markets stabilized.
Mr. Choi said on Wednesday that the government would focus on shielding the economy, and that officials would “closely communicate” with the authorities of other countries with major economies. “The government will do its best to address economic concerns and to minimize disruptions in entrepreneurial and daily activities,” he said.
The Bank of Korea called an emergency meeting on Wednesday “given the underlying anxiety” in markets, it said in a statement. The central bank said it would “actively” take various measures to calm markets and currency fluctuations.
Bank officials unexpectedly cut interest rates last week, citing “heightened uncertainties surrounding growth and inflation, driven by the new U.S. administration’s policies.”
As opposition lawmakers demanded that Mr. Yoon step down, analysts and investors were trying to gauge how long South Korea’s outbreak of political turmoil would persist.
While heightened political uncertainty is expected to persist, “we expect limited implications for the economy and financial markets as the Bank of Korea and the Ministry of Finance have responded swiftly by reassuring investors,” said analysts at BMI, a unit of the research firm Fitch Solutions. The central bank’s measures also mean “risks around the won should remain contained,” they wrote in a note.
And although most stocks in Seoul were down, some companies gained on the prospect of a change in government. Kakao, the sprawling social media and payments app, jumped more than 7 percent on speculation over a potential shift in antitrust policy. Mr. Yoon had called the company’s dominant ride-hailing service a “tyranny.”
“South Korea’s democratic institutions and culture have withstood the stress test,” Krishna Guha, vice chairman of Evercore ISI, a brokerage, wrote in a research note. “But it is extraordinary and troubling that it happened at all,” he added.
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