South Korea’s political turmoil adds to the nation’s headwinds

South Korea’s political turmoil is adding headwinds to a nation already threatened by protectionist trade policies.

The political crisis, after South Korean President Yoon Suk Yeol’s short-lived martial law, stoked uncertainty in the nation’s financial markets. The US dollar-Korean won pair rose and Korean stocks dropped.

The nation’s government and financial authorities were quick to act on the volatility, announcing they would provide unlimited liquidity to the market until it returned to normal. The Bank of Korea had also expanded the scope of market operations to maintain liquidity and market stability amid the political crisis.

Rundown

• Last week, Yoon’s emergency martial law was vetoed by the National Assembly a few hours after the announcement.
• Protests have erupted across Seoul. Now Yoon, who is under investigation for his short-lived martial law declaration, faces a travel ban.
• Yoon was already facing steeply declining public approval. His party failed to secure an absolute majority in Parliament in the April legislative elections.
• In November, he vetoed a bill calling for a special counsel investigation involving corruption allegations against his wife.

Takeaway

• The worst hit South Korea could face in the near term is a downturn on their tourism and domestic activity.
• Political uncertainty could persist, and ratings agencies have already noted a negative impact on their credit rating.
• Already, South Korea is among the more vulnerable to the impact of Trump’s proposed tariffs given its export-oriented economy. In the wake of the last presidential impeachment of President Park Geun-hye in 2016, both business and consumer sentiment took a significant hit, with economic activity slowing.
• South Korea’s existing economic challenges and its recent political crisis warrant some close monitoring and cautious approach in the foreseeable future.

(Disclaimer: This is general investment information only and does not constitute an offer or guarantee, with all investment decisions made at your own risk. The bank takes no responsibility for any potential losses.) 

SETH ANGELO GAMBOA is a Research Officer from Metrobank’s Trust Banking Group who covers both Philippine and offshore macroeconomic research. He graduated cum laude from the University of the Philippines Los Baños with a degree in Economics, specializing in Development Economics. He is a Certified UITF Sales Person (CUSP) and is a Certified Treasury Professional (BAP-TCP). Seth enjoys playing video games, watching anime, and going on out-of-town trips with his loved ones.

ANNA DOMINIQUE CUDIA, MBA, CSS, is the Head of Markets Research at Metrobank’s Trust Banking Group, spearheading the generation and presentation of financial markets insights to clients. She used to be with Metrobank’s Investor Relations, where she brought in international awards and took part in various multi-billion peso and dollar capital raising activities. She holds a Master of Business Administration (Finance) degree, with distinction, from the University of London, and industry certifications in finance. She is a naturally curious person and likes to travel here and abroad.