SEOUL – South Korea’s Finance Ministry said on Dec 5 that the government will activate 40 trillion won (S$38 billion) worth of market stabilisation fund, after President Yoon Suk Yeol’s lifting of a martial law declaration affected financial markets.
The Bank of Korea (BOK) may purchase government bonds and expand repo operations if needed, and the government is closely monitoring markets and will deploy measures according to contingency plans if needed, the Finance Ministry said in a statement.
The government and the central bank earlier vowed to provide “unlimited liquidity” if necessary in the aftermath of the martial law declaration.
In an interview on Dec 4, BOK governor Rhee Chang-yong expressed confidence in the ability of the authorities to keep the volatility under control and dismissed the chance of cutting the interest rate solely on account of the political turbulence.
The won currency has been among the biggest victims from the row that swept the nation and raised concerns about South Korea’s credit worthiness.
After shooting above 1,440 won per US dollar in one of the most rapid depreciations in years, the exchange rate reversed back to around 1,410 won per US dollar in early trading on Dec 5 – buoyed by suspected central bank intervention.
Seoul’s Kospi stock index ended down 1.4 per cent on Dec 4, having shed as much as 2.3 per cent at the open.
Even before President Yoon’s shock martial law announcement, the Kospi and the won were among the world’s worst performers, partly due to fears that the trade-reliant nation would be a major casualty of Trump tariffs.
That was on top of worries about slowing domestic growth, which last week led to a surprise rate cut from the BOK.
The worries led to four straight months of stock outflows totalling over US$14 billion (S$18.8 billion), prompting Citigroup, Goldman Sachs Group and JPMorgan Chase & Co to downgrade the nation’s shares in November.
“I already have an underweight position on Korea in my Asian portfolios,” said Ms Joohee An, chief investment officer at Mirae Asset Global Investments Co in Hong Kong. “This event is not helpful for earnings growth or companies’ outlooks. Even though they are trading at discounts, I would prefer to invest in other countries, where I see better earnings numbers.” REUTERS, BLOOMBERG
