South Korean markets faced a turbulent day after President Yoon Suk Yeol unexpectedly declared martial law. The dramatic move, a first in more than four decades, led to widespread concern over political instability, prompting a sharp sell-off in South Korean assets.
The iShares MSCI South Korea ETF dropped as much as 8.7% to US$52.67, marking its worst intraday performance since August 2023. They’ve currently regained some ground and are trading down 1.8% at US$55.69.
Meanwhile, London-listed Samsung Electronics shares plummeted by 7.5%.
South Korean ADRs (American Depositary Receipts – shares of South Korean companies traded on US exchanges) also suffered losses, with Coupang Inc falling 9.8% and Posco Holdings Inc dropping 4.3%.
The Korean won declined sharply, weakening 2.9% to 1,444.65 per US dollar during New York trading hours, reaching its lowest point since 2022.
What happened?
On Tuesday night, during a televised speech, President Yoon declared martial law was necessary “to safeguard a liberal South Korea from the threats posed by North Korea’s communist forces and to eliminate anti-state elements plundering people’s freedom and happiness”.
All main political parties, including President Yoon’s People Power Party (PPP), opposed the move.
Yoon and his administration had faced low approval ratings and multiple corruption allegations, and struggled with passing legislation through a parliament in which the opposition Democratic Party (DP) holds a majority of seats.
The DP had slashed around 4.1 trillion won from Yoon’s proposed 677 trillion won budget plan, cutting the government’s reserve fund and activity budgets for Yoon’s office, the prosecution, police and the state audit agency.
In response to the martial law declaration, the National Assembly was sealed, and troops entered the building and attempted to gain access to the main hall, where voting takes place. Party officials sprayed them with fire extinguishers and stopped their entry. Hundreds of protesters gathered outside.
Hours later, with 190 out of 300 lawmakers present, 18 from the PPP and 172 opposition MPs, some of whom climbed fences to enter the building, parliament voted unanimously in an emergency session to lift the declaration. National Assembly Speaker Woo Won Shik declared that lawmakers “will protect democracy with the people”.
President Yoon subsequently announced he would lift martial law after a cabinet meeting,
Market response
The sell-off eased slightly after parliament’s voted and authorities pledged “unlimited liquidity” to stabilise markets.
The won pared some losses, trading at 1,421.85 per dollar by midday in New York, though it remains one of Asia’s worst-performing currencies this year, having weakened over 9%.
The Korea Exchange announced it was reviewing trading protocols for Wednesday amid continued volatility.
The turmoil comes as South Korea grapples with broader economic challenges, including slowing export growth and an unexpected interest rate cut last week. The Bank of Korea’s dovish stance has added to the won’s weakness, with additional pressure from global trade tensions and protectionist policies.
“The domestic uncertainty adds to external pressures in recent weeks as the market is starting to price in the rise of higher US tariffs under the new Trump administration,” said Aroop Chatterjee, a strategist at Wells Fargo.