South Korea’s prolonged political storm saps investor view

South Korea’s financial markets will likely continue to face volatility, as the nation’s political storm extends and damps the economy.

Economic growth, which has been arrested by weaker consumer spending, is also facing headwinds from protectionist trade policies.

The crisis surrounding South Korean President Yoon Suk Yeol’s impeachment continues to sap investor sentiment. Financial-market volatility will likely persist until the domestic political situation stabilizes and proceeds in a more unified direction.

Rundown

• In early December 2024, we wrote about how South Korea’s short-lived martial law stoked uncertainty and added to the nation’s economic woes.
• From then, Yoon had holed up in his residence, guarded by a small army of presidential security staff to block all attempts of arrest. On January 15, 2025, Yoon was arrested.
• A trial investigating the validity of Yoon’s impeachment by parliament in December has begun. It will determine whether he will continue as president or, if the impeachment is upheld, trigger a presidential snap election within the next 60 days.
• Some economists expect to see the court decision by mid-March, which could lead to a snap election in mid-May.

Takeaway

• The political crisis will damp South Korea’s economy this year, economists say. Already, fourth quarter 2024 economic growth was weaker than expected, dragged by weaker consumption and construction investment.
• While the South Korean stock market has slowly recovered, investors remain on the sidelines as the Bank of Korea cut the nation’s economic growth forecast over the political crisis.
• Global trade uncertainty amid US President Donald Trump’s potential across-the-board tariffs weighs down sentiment, as South Korea is a net exporting country.

Call

We recommend maintaining an underweight stance on South Korea due to the prevalent headwinds to its recovery story.

(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 Licensed Fixed Income Market Salesman (FIMS) 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.