South Korea shares fall at the close as political tensions continue; Asia markets mixed

SOUTH Korean shares continued to fall by the close on Wednesday (Dec 4), after the country’s President Yoon Suk Yeol declared martial law overnight.

Yoon then lifted the decree within hours, but opposition lawmakers filed a motion to impeach him after his shock decision to impose martial law, according to AFP.

The benchmark Kospi opened sharply lower, down 1.9 per cent, but pared losses marginally to recover to 1.44 per cent, closing at around 2,464.

Major Korean stocks were in the red. Samsung was down nearly 1 per cent, Hyundai Motor fell more than 2.5 per cent, and Lotte tumbled 2.1 per cent.

The won, which had weakened against the US dollar overnight by as much as 2.9 per cent, pared some losses. Swinging between declines and gains in early Korean trade, it last traded at 1,408.71 per dollar.

South Korea’s finance ministry said that it is ready to deploy “unlimited” liquidity into financial markets if needed after the martial law declaration pushed the won to multi-year lows.

Other Asia-Pacific markets were mixed by the afternoon. Japan’s Nikkei 225 was trading flat, while Hong Kong’s Hang Seng index reversed earlier losses to gain 0.3 per cent. Australia’s ASX 200 lost 0.4 per cent.

Korean American depositary receipts (ADRs) – Korean stocks traded in the United States – sold off overnight, declining around 6 per cent, Morningstar noted.

Foreign investors have been exiting Korea’s stock market since August, with outflows in four months reaching more than US$14 billion, according to data from Reuters.

But Morningstar remains optimistic.

“We don’t expect the sell-off in the ADRs to continue. However, we may see a subdued but still negative impact to share price action in the Korean market when it opens for trade,” Morningstar said.

“This event highlights that the political risks and the leadership issues in Korea remain,” it added.

Morningstar’s fair-value estimates for South Korean stocks under its coverage, however, remained unchanged as it sees the martial law development to be a short-term event, and noted that share price weakness is an opportunity for investors to buy selectively.

Strategists also say that the won could face more headwinds.

Maybank, in a note on Wednesday, said that further developments could pose more risk for the won. “We think that Korean won could remain under pressure, with confidence shaken and growing calls for Yoon to resign or face impeachment,” it said.

UOB also noted that the dollar will continue to strengthen against the won, with its forecast for the dollar-won pair to reach 1,420 by the first quarter of 2025 and 1,460 by the third quarter.

“In the event the political crisis worsens further to become a drag to the economy, we would not be surprised the forecasts may be reached sooner than expected,” the bank added.