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.

The political turmoil in South Korea is having a significant negative impact on the capital market, and the country’s financial regulatory authorities are speaking out, hoping to stabilize the financial market.

Latest Developments in South Korean Politics

In response to South Korean President Yoon Suk-yeol’s issuance and subsequent lifting of the emergency martial law, the high-level aide team above the Chief Secretary of the Presidential Office collectively submitted their resignations on the morning of the 4th. The Chief Secretary of the Presidential Office, Jeong Jin-seok, chaired a meeting of chief secretaries that morning, where all aides above the Chief Secretary expressed their willingness to resign.

On the 4th, the leadership of the ruling People Power Party held a closed-door Supreme Council meeting in the National Assembly. Kim Jong-heon, a Supreme Council member of the People Power Party, revealed to the media that the meeting discussed plans for President Yoon Suk-yeol to resign from the party and for the entire cabinet to resign, in order to hold Yoon accountable for issuing the emergency martial law.

The largest opposition party, the Democratic Party of Korea, held an emergency meeting of lawmakers in the National Assembly on the 4th and issued a resolution stating that President Yoon Suk-yeol should immediately resign voluntarily. The resolution emphasized that Yoon’s declaration of emergency martial law violated the constitution and did not meet any of the conditions necessary for issuing such a decree. If he does not resign voluntarily, the Democratic Party will proceed with impeachment. The resolution further stated that the declaration of emergency martial law is invalid and constitutes a serious violation of the constitution and laws, amounting to a severe act of internal turmoil, providing sufficient grounds for impeachment.

According to a report from Yonhap News Agency on December 4, six opposition parties in South Korea submitted an impeachment bill against Yoon Suk-yeol at 2:40 PM local time.

Financial Market Turmoil and Emergency Government Interventions

On Wednesday, the Korea Composite Stock Price Index opened lower, dropping 2.3% at one point, with KB Financial Group declining over 7%, the National Bank of Korea falling 6%, and Samsung Electronics and SK Hynix both dropping over 2%. By the close, the Korea Composite Index had declined by 1.44%, while KOSDAQ fell by 1.98%.

During the previous night’s trading session in the U.S., the iShares MSCI South Korea ETF (EWY), which tracks over 90 large and mid-sized South Korean companies, plummeted 7% to a 52-week low, ultimately closing down 1.6%.

In the foreign exchange market, the South Korean won showed little volatility against the U.S. dollar. As of the time of the reporter’s writing, 1 U.S. dollar was equivalent to 1411.19 won. However, since October of this year, the won has been continuously depreciating against the dollar. At the beginning of October, 1 U.S. dollar was equivalent to 1302.94 won, marking a depreciation of over 4% to date.

Amid the turmoil in the financial market, major financial regulatory authorities in South Korea, including the Bank of Korea, the Financial Services Commission, and the Ministry of Finance, urgently announced a series of market stabilization measures just before and after the opening of the South Korean stock market on Wednesday. The South Korean government even claimed to provide “unlimited liquidity” to stabilize the market if necessary.

Kim Byoung-hwan, the Chairman of the Financial Services Commission, stated that South Korea would take all possible measures to prevent tension from spreading in the financial markets and to ensure the normal and stable operation of the market. South Korea is prepared to take immediate market stabilization measures, such as a stock market stabilization fund of 10 trillion won (approximately 70.7 billion USD) that can be activated immediately. Regarding the bond and capital markets, the maximum utilization of a 40 trillion won bond market stabilization fund, along with a corporate bond and commercial paper (CP) purchase program, will be implemented. In the foreign exchange market, South Korea will prepare for additional margin risks arising from currency fluctuations. He also urged financial institution associations to encourage financial companies to ensure sufficient foreign exchange liquidity and called on the Korea Exchange and other relevant departments to prevent actions that could disrupt the market.

The Bank of Korea held a special board meeting around 9 AM KST, where it announced plans to sell two-year monetary stabilization bonds at a yield of 2.690%. It will ease collateral policies in repurchase operations to alleviate any tension in the bond market and increase short-term liquidity, taking measures to stabilize the foreign exchange market if necessary.

In a statement released after the meeting, the Bank of Korea indicated that it would provide any special loans if needed to inject funds into the market. The Bank of Korea stated, “As jointly announced with the government, we will provide ample liquidity for a certain period until the financial and foreign exchange markets stabilize.”

However, Bank of Korea Vice Governor Park Jong-woo stated at a press conference that during today’s special meeting, Bank of Korea officials did not discuss the policy interest rate. Just last week, the Bank of Korea unexpectedly lowered the benchmark interest rate by 25 basis points.

The Ministry of Finance also held a meeting on Wednesday morning. Finance Minister Choi Sang-mok stated that South Korea would establish a 24-hour team to monitor the market and make every effort to quickly resolve the economic uncertainties following this turmoil, ensuring that the economy and people’s lives are not affected. Earlier that day, Finance Minister Choi Sang-mok promised that the South Korean government would take all possible measures to stabilize the financial market if necessary. He stated, “We will mobilize all available financial and foreign exchange market stabilization measures, including unlimited liquidity injections.”

According to the Yonhap News Agency, South Korea’s financial regulatory authorities are prepared to allocate 10 trillion won (approximately 514.19 billion RMB) to the stock market stabilization fund at any time.

Proofread by: Yang Liling

(Edited by: Guo Jiandong)

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