Turmoil is continuing in the Korean peninsula, with escalating tensions below the 38th parallel associated with impeachment charges. In the north, meanwhile, Seoul’s communist opponent has tested a mid-range missile, calling attention to ongoing instability in the region.
Regarding the southern country, officials failed to arrest President Yoon Suk Yeol. He faces insurrection charges after declaring martial law, which sparked chaos throughout the country.
Efforts to enforce a court order to detain and question him, however, were thwarted late last week by his supporters and armed secret service bodyguards. In response, police and the country’s anti-corruption agency are debating taking more forceful efforts to capture the former leader.
Yoon’s supporters are reportedly implementing safeguards, such as adding barbed wire enclosures around the impeached leader’s government residence.
How has this affected the Korean stock market?
Despite the news flow, Korea’s benchmark KOSPI index (Korea Composite Stock Price Index) has been shrugging off the drama. The KOSPI is up 6.8% for the last 30 days at time of writing (Wednesday 8 January), which seems to be breaking an established downwards trend that saw the index give up 11.7% in the last six months.
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The index has been benefiting from buying by foreign investors. It has also been boosted by the CES 2025 exhibition in Korea, which profiles companies in the country’s semi-conductor industry. This has been illustrated by the performance of some of the country’s leading semi-conductor stocks. Just taking one example, chip manufacturer SK Hynix Inc [KRX:000660] is up 15.2% in the last month.
Don’t bet against South Korea in the tech stakes
South Korea remains the second largest producer of semi-conductors in the world with approximately 17% of the global market share. It also controls 17% of the global chip foundry market and is intent on further expanding its expertise here. In 2023 the export volume of Korean semi-conductors was valued at approximately $98.6bn.
Some fund managers are comparing the current efforts by the Korean president to impose authoritarian rule in the country with the attempted coup by Spanish colonel Antonio Tejero, who famously led an assault on Spain’s Congress of Deputies in 1981. The coup attempt failed, and has been hailed as a pivotal moment in the development of democracy in Spain and a test of key institutions.
It is a different story for the Korean won, pushed to a 16-year low against the US dollar. Much will depend on how the current political crisis plays out. More drama will likely see the KRW sold further. The crisis drove the won through the key 1400 level in December like it wasn’t there and some forex analysts now see 1500 as highly achievable next week.
At time of writing the Seoul Western District Court had re-issued its warrant for the arrest of Yoon, who was suspended as president on 14 December and is currently facing impeachment. The Secret Service, which is responsible for the protection of the president, has continued to protect him at his residence, including adding to its defences, which does call into question its impartiality.
What The Armchair Trader thinks
The sell off in South Korean assets is being driven by the news flow out of Seoul. Many Koreans and Korea watchers are surprised the crisis is taking so long to play out. It is creating a situation where some very high quality companies are trading a lower valuations than they should be.
