South Korean shares declined on Wednesday as the nation grappled with its most significant political crisis in decades. Lawmakers called for the impeachment of President Yoon Suk Yeol following his unexpected declaration of martial law, which he later rescinded within hours.
The announcement on Tuesday evening rattled markets, triggering a selloff across South Korean assets. The currency fell to a two-year low before stabilizing on Wednesday, while the benchmark KOSPI Index dropped nearly 2%.
Below are insights from fund managers on the situation:
Sat Duhra, Portfolio Manager, Asia Dividend Income, Janus Henderson, Singapore:
“This appears to be a political gamble that has backfired. Given the uncertainty, I don’t plan to increase exposure to Korea. Despite the market’s undervaluation and its underperformance—typically attractive to investors—there isn’t enough to indicate stability for the won.
Investors have long been cautious about the so-called ‘Korea discount,’ and this crisis only amplifies that sentiment. The potential for impeachment, uncertainty surrounding leadership, and a lackluster macroeconomic outlook will likely deter foreign investors. Against this backdrop, I find China a more appealing option. Additionally, a Trump administration introduces further unpredictability, particularly for Korean exporters.”
Daniel Tan, Portfolio Manager, Grasshopper Asset Management, Singapore:
“Over the long term, this martial law episode will exacerbate the ‘Korean discount,’ an elevated risk premium associated with trading Korean assets such as equities, currency, and bonds.
The KOSPI, a reflection of this discount, currently trades at 0.8 times its forward estimated book value, significantly lower than the MSCI World Index, which trades closer to 3 times. Investors may now demand an even higher risk premium for holding Korean equities or the won.” Extended selloffs in South Korea are unlikely, provided the government and the Bank of Korea remain committed to ensuring ‘unlimited liquidity.’
