The political turmoil in South Korea is having a significant negative impact on the capital markets, and the South Korean financial regulatory authorities have voiced their hope to stabilize the financial markets.

Latest Developments in South Korean Political Situation

Affected by the announcement and lifting of the emergency martial law issued by South Korean President Yoon Suk-yeol, the high-level staff team above the chief secretary of the Presidential Blue House collectively submitted their resignations on the morning of the 4th. The chief secretary of the Presidential Blue House, Jung Jin-suk, chaired a meeting of the chief secretaries in the morning, where all high-level staff members expressed their intention to resign.

On the 4th, the leadership of South Korea's ruling party, the People Power Party, held a closed-door highest council meeting at the National Assembly. The highest council member of the People Power Party, Kim Jong-hee, revealed to the media that the meeting discussed proposals such as President Yoon Suk-yeol's resignation from the party and the collective resignation of the cabinet in order to hold Yoon Suk-yeol accountable for issuing the emergency martial law.

On the 4th, South Korea's largest opposition party, the Democratic Party, held an emergency parliamentary meeting and issued a resolution stating that President Yoon Suk-yeol should immediately resign. The resolution emphasized that Yoon Suk-yeol's announcement of the emergency martial law violated the constitution and did not adhere to any necessary conditions for issuing the emergency martial law. If he does not resign voluntarily, the Democratic Party will proceed with impeachment. The resolution also stated that the declaration of the emergency martial law was an invalid and seriously unconstitutional and illegal act, constituting a serious act of insurrection, providing sufficient grounds for impeachment.

According to Yonhap News Agency on December 4th, six opposition parties in South Korea submitted an impeachment bill against Yoon Suk-yeol at 14:40 local time.

Financial markets in turmoil, government urgently intervenes

On Wednesday, the Seoul Composite Index in South Korea opened lower, falling by 2.3% at one point, with KB Financial Group falling by over 7%, KB Financial Group fell by 6%, Samsung Electronics and SK Hynix both dropped by over 2%. By the end of trading, the South Korea Composite Index fell by 1.44%, and the KOSDAQ fell by 1.98%.

During the last night of US stock trading, the iShares MSCI Korea ETF (EWY), which tracks over 90 large and medium-sized companies in South Korea, plunged 7% to a 52-week low, eventually closing down 1.6%.

In the foreign exchange market, the South Korean won has not fluctuated much against the US dollar. As of the time of reporting, 1 US dollar equals 1411.19 South Korean won. However, since October this year, the South Korean won has been continuously depreciating against the US dollar. At the beginning of October, 1 US dollar was equivalent to 1302.94 South Korean won. The depreciation has exceeded 4% so far.

Amidst the turmoil in the financial markets, various major South Korean financial regulators including the Bank of Korea, the Financial Services Commission of South Korea, and the Ministry of Economy and Finance, announced a series of emergency market support measures before and after the opening of the South Korean stock market on Wednesday. The South Korean government even stated that it would provide "unlimited liquidity" when necessary to stabilize the market.

Chairman Kim Byoung-hwan of the Financial Services Commission of South Korea stated that South Korea will take all possible measures to prevent the spread of financial market tension and ensure the market's normal and stable operation. South Korea is prepared to take immediate market stabilization measures when necessary, such as utilizing a 10 trillion won (approximately $7.07 billion) stock market stabilization fund. Regarding the bond and capital markets, South Korea will maximize the use of a 40 trillion won bond market stabilization fund as well as corporate bonds and commercial paper (CP) purchase programs. In terms of the foreign exchange market, South Korea will prepare for additional margin risks caused by exchange rate fluctuations. He also requested the Financial Institutions Association to encourage financial companies to ensure sufficient foreign exchange liquidity, and called on the South Korean Exchange and other related departments to prevent any actions that may disrupt the market.

The Bank of Korea held a special board meeting around 9 a.m. South Korean time, where it announced the sale of two-year currency stability bonds at a yield of 2.690%; it will relax the collateral policy in repurchase operations to alleviate any tension in the bond market; it will increase short-term liquidity and take measures to stabilize the foreign exchange market when necessary.

In a statement released after the meeting, the Bank of Korea stated that if needed, it will provide any special loans and inject funds into the market. The Bank of Korea stated: "As jointly announced with the government, we will provide sufficient liquidity for a certain period of time until the financial and foreign exchange markets stabilize."

However, Deputy Governor Park Jongwoo of the Bank of Korea stated at a press conference that during today's special meeting, Bank of Korea officials did not discuss the issue of policy interest rates. Just last week, the Bank of Korea unexpectedly cut the benchmark rate by 25 basis points.

The Ministry of Economy and Finance of South Korea also held a meeting on Wednesday morning. Finance Minister Choi Sung-Mok stated that South Korea will establish a team that operates 24 hours a day to monitor the market and will do everything possible to quickly resolve the economic uncertainties arising after this turmoil, to ensure that the economy and people's lives are not affected. Earlier that day, Finance Minister Choi Sung-Mok promised that the South Korean government will take all possible measures to stabilize the financial markets when necessary. He stated: "We will mobilize all possible financial and foreign exchange market stabilization measures, including unlimited liquidity injections."

According to Yonhap News Agency, the South Korean financial regulatory authorities are prepared to allocate 10 trillion won (approximately 51.419 billion yuan) to the stock market stabilization fund at any time.

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