(Bloomberg) — South Korean stocks slumped and the won edged lower on Monday as traders braced for a period of sustained volatility due to a deepening political crisis.
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The benchmark Kospi Index dropped as much as 2.2%, and the small-cap Kosdaq Index tumbled more than 3% to its lowest since May 2020. The won slipped about 0.4% against the dollar, while bond futures were little changed.
Investors face the risk of a prolonged stalemate after Saturday’s impeachment motion against President Yoon Suk Yeol failed. The main opposition party has said it will push quickly for another vote. While officials in Seoul are pulling out all the stops to prevent a market meltdown, uncertainties over the country’s leadership have cast a pall on sentiment.
“The possibility of the worst-case scenario for the Kospi has increased,” said Lee Kyoung-Min, a strategist at Daishin Securities Co. “Even at a small development, the Kospi can wobble because of accumulated fatigue, disappointment, extremely dented investor sentiment and supply and demand situations.”
With Yoon facing intense pressure to resign, ruling People Power Party leader Han Dong-hoon on Sunday said Prime Minister Han Duck-soo will manage the nation’s affairs while his party prepares an orderly exit plan for the president.
Opposition lawmakers slammed the decision as unconstitutional and thousands took to the streets to protest.
The standoff couldn’t have come at a worse time for local markets. The Kospi gauge and the won were among Asia’s worst performers this year even before the martial law fiasco.
Investors were pinning their hopes on the country’s leadership to navigate an uncertain global trade environment following Donald Trump’s election win. The “Value-Up” initiative — a program to improve corporate governance and shareholder returns — was also in need for a stronger push to reinvigorate the flagging stock market.
While top economic and financial officials have been meeting almost on a daily basis to ease financial jitters, there’s a big question over who’s in charge of Korea.
Financial authorities will mobilize “every possible measure” to minimize the impact on the economy and will closely monitor its financial markets around the clock, according to a joint ministerial statement on Monday morning. They plan to launch a 300 billion won ($209 million) fund next week to buy “value-up” stocks to help shore up the market, while continuing to deploy the earlier 200 billion won fund.
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