Impeaching the President, South Korea's stock market plunges! South Korea's Central Bank and Ministry of Finance step in to stabilize the market

South Korea’s political turmoil is having a significant negative impact on the capital markets, and Korean financial regulators have issued statements in an effort to stabilize the financial market.

Latest Developments in South Korea’s Political Situation

Following President Yoon Suk-yeol’s issuance and lifting of a state of emergency, high-level staff members at the Blue House, including the Chief Secretary, collectively resigned on the morning of the 4th. The Secretary-General of the Blue House, Jeong Jeon-seok, held a meeting of chief secretaries that morning, during which all senior staff expressed their intention to resign.

The ruling People Power Party leadership held a closed-door Supreme Committee meeting in the National Assembly on the 4th. According to media reports, PPP Supreme Commissioner Kim Jong-hyeok revealed that the meeting discussed plans such as Yoon Suk-yeol’s resignation from the party and the resignation of the entire cabinet to hold him accountable for issuing the emergency martial law.

The largest opposition party, the Democratic Party, held an emergency parliamentary meeting and issued a resolution on the 4th, stating that President Yoon Suk-yeol should resign immediately. The resolution emphasized that Yoon’s declaration of emergency martial law was unconstitutional and did not meet any necessary conditions for such a declaration. If he does not resign voluntarily, the Democratic Party will push for impeachment. The resolution also stated that declaring emergency martial law is invalid and a serious violation of the constitution and laws, constituting a severe act of internal chaos and sufficient grounds for impeachment.

According to Yonhap News Agency on December 4, six opposition parties submitted articles of impeachment against Yoon Suk-yeol at 14:40 local time.

Financial Market Turmoil and Emergency Government Measures

On Wednesday, the Seoul Composite Index opened lower, dropping as much as 2.3%. KB Financial Group’s stock fell over 7% at one point, Korea Kookmin Bank declined 6%, and Samsung Electronics and SK Hynix both fell more than 2%. By the close, the index decreased by 1.44%, and KOSDAQ dropped 1.98%.

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

In the foreign exchange market, the won-dollar exchange rate fluctuated little, currently at 1 USD = 1,411.19 KRW. Since October, the won has been steadily depreciating against the dollar, from 1 USD = 1,302.94 KRW in early October, a depreciation of over 4%.

Amid the market turbulence, several key Korean financial authorities, including the Bank of Korea, the Financial Services Commission, and the Ministry of Finance, urgently announced a series of measures before and around the opening of the Korean stock market on Wednesday. The Korean government also claimed it would provide “unlimited liquidity” if necessary to stabilize the market.

Kim Byoung-hwan, Chairman of the Financial Services Commission, stated that Korea would take all possible measures to prevent financial market tensions from spreading and to ensure normal and stable market operation. Korea is prepared to immediately implement market stabilization measures, such as a 100 trillion KRW (approximately $707 million) stock market stabilization fund that can be activated immediately. For the bond and capital markets, measures include maximizing the use of a 400 trillion KRW bond market stabilization fund and plans to purchase corporate bonds and commercial paper (CP). Regarding the foreign exchange market, Korea is preparing for additional margin call risks caused by exchange rate rises. He also urged financial institutions to ensure sufficient foreign exchange liquidity and asked the Korea Exchange and other relevant departments to prevent behaviors that could disrupt the market.

The Bank of Korea held a special board meeting around 9 a.m. local time, announcing plans to sell two-year maturity currency stabilization bonds at a yield of 2.690%, relax collateral policies in repurchase operations to ease any tension in the bond market, increase short-term liquidity, and take measures to stabilize the foreign exchange market if necessary.

In a subsequent statement, the Bank of Korea indicated it would provide any necessary special loans to inject funds into the market. The Bank stated, “As announced jointly 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 said at a press conference that officials did not discuss policy interest rates at the special meeting today. Just last week, the Bank unexpectedly cut its benchmark interest rate by 25 basis points.

The Ministry of Finance also held a meeting on Wednesday morning. Finance Minister Choo Kyung-ho said Korea would establish a 24-hour continuous monitoring team to oversee the market and do everything possible to quickly resolve the economic uncertainties following this turmoil, aiming to keep the economy and people’s lives unaffected. Earlier that day, Minister Choo Kyung-ho promised that the government would take all possible measures to stabilize the financial market, including unlimited liquidity injections.

According to Yonhap News Agency, Korean financial regulators are prepared to allocate 100 trillion KRW (about 51.42 billion RMB) to the stock market stabilization fund at any time.

Proofread: Yang Lilin

(Editors: Guo Jiandong)

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