South Korea's stock market crashes 2% amid martial law issue; know more

In a dramatic overnight turn of events, South Korea saw a brief imposition of martial law, sending shockwaves through the country’s stock markets. The KOSPI index, the equity benchmark of the country, fell as much as 2.3% in early trade on Wednesday, while the tech-heavy index KOSDAQ declined 3% as political unrest in the country left investors jittery.

What K-drama unfolded in South Korea overnight?

In a late-night televised address, South Korean President Yoon Suk Yeol accused the opposition Democratic Party (DP) of engaging in “anti-state activities” that threatened the country’s democracy and national stability and announced the imposition of a martial law. The martial law decree banned political activities, strikes, public gatherings, and “false propaganda,” while also placing the media under military control. Striking medical workers were ordered to return to work within 48 hours.

Security forces sealed off the National Assembly, with troops briefly entering the building. Soon after the announcement, the parliament voted on the imposition of the law, with 190 parliamentarians, including some from Yoon’s own party, convened to unanimously reject the decree and demand its immediate repeal. Widespread protests erupted across the country, with hundreds chanting for Yoon’s resignation.

Facing mounting backlash, Yoon revoked the martial law within six hours, following an early-morning cabinet meeting. In a 4:30 a.m. address, he announced the withdrawal of troops and confirmed the order’s repeal. This was the first time martial law was imposed in South Korea since 1979 and the first since the country's democratisation in 1987.

The opposition Democratic Party, which controls 192 of the 300 seats in the National Assembly, called for Yoon’s immediate resignation, accusing him of violating the Constitution. The DP also announced plans to initiate impeachment proceedings if he refused to step down. Senior aides, including the presidential chief of staff and national security adviser, offered to resign en masse in the wake of the controversy.

Yoon’s martial law declaration came amid a budget dispute with the opposition and growing criticism of his administration’s handling of domestic issues and on Yoon’s alleged corruption.

The dramatic events have unsettled investors, with market strategists warning of potential volatility in the short term. International reactions have been mixed, with the United States and the UK urging a peaceful resolution in accordance with South Korea’s Constitution.

How did the South Korean markets react?

The South Korean won (KRW) and local assets faced sharp declines with KRW slipping to its lowest level since October 2022, hitting 1,442 per dollar during offshore trading, before recovering to 1,416.94 by Wednesday morning.

Heavyweight stocks like Samsung Electronics dropped nearly 1%, while LG Energy Solution and Hyundai Motor declined 2.8% and 2.4%, respectively. Korea Gas Corporation led losses on the Kospi, plunging over 14%.

What did the Bank of Korea say?

In response, South Korea’s finance ministry pledged “unlimited liquidity” to stabilise stock, bond, and currency markets. Deputy Prime Minister Choi announced the formation of a 24-hour monitoring team to mitigate economic fallout.

Following the emergency board meeting, the Bank of Korea (BOK) announced it would boost short-term liquidity and deploy measures to stabilise the foreign exchange market, including providing special loans if necessary.

South Korea's financial regulator also indicated it could allocate up to 10 trillion won ($7.07 billion) to a stock market stabilisation fund to ease market tensions. Meanwhile, reports suggested that the country's foreign exchange authorities sold U.S. dollars in the onshore market to limit the won’s decline.