[비즈한국] The aftermath of the declaration of emergency martial law is rippling through the financial sector. Following the declaration at approximately 10:23 PM on the 3rd, the exchange rate surged to as high as 1,444 won. Although the Korea Exchange opened normally after the martial law was lifted around 4:30 AM on the 4th, the financial sector has entered a state of emergency response. Financial authorities plan to operate a 24-hour task force (TF) to monitor economic and financial conditions.
Financial Authorities: “We Will Take Every Measure to Stabilize the Market”
Following the declaration of emergency martial law in the early hours of the 3rd, the won-dollar exchange rate spiked to 1,444 won. Although martial law has been lifted, the financial sector remains on high alert. On the morning of the 4th, the Ministry of Economy and Finance, the Financial Services Commission, the Financial Supervisory Service, and the Bank of Korea jointly announced, “We have decided to supply unlimited liquidity until the stock, bond, short-term funding, and foreign currency markets are fully normalized.”
Financial authorities are maintaining a position that they will take all possible measures to stabilize the market by operating a pan-government joint real-time monitoring system. However, it was decided that the stock market would operate normally. Choi Sang-mok, Deputy Prime Minister and Minister of Economy and Finance, stated, “We will operate a 24-hour economic and financial situation monitoring task force (TF) to ensure that no shocks occur in the real economy.”
The Bank of Korea also held an emergency Monetary Policy Committee meeting and decided to supply liquidity to the market through non-regular repurchase agreement (RP) purchases on a temporary basis until February 28, 2025. This involves the Bank of Korea purchasing bonds from financial institutions on the condition of repurchase. The Bank of Korea also expanded the scope of institutions eligible for RP purchases and transactions.
As rumors such as “go exchange your currency for dollars” spread on social media following the declaration of martial law, internet-only banks temporarily suspended related services such as currency exchange. The stock market was also adversely affected. On the 4th, the closing price in the Seoul foreign exchange market was 1,410.1 won, up 7.2 won from the previous trading day. According to the Korea Exchange, the KOSPI index fell 1.44% from the previous trading day to close at 2,464.00, while the KOSDAQ index fell 1.98% to close at 677.15.
Securities Industry: “Domestic Political Risk Highlighted”
The securities industry is concerned that the martial law situation could trigger a massive exodus of foreign investors. Foreign investors have already net sold over 400 billion won in the KOSPI market and over 10 billion won in the KOSDAQ market.
Voices of concern are growing among experts. Kim Yoon-jung, a senior researcher at the LS Securities078020 Research Center, analyzed, “Domestic political risk has been highlighted due to this measure, which is perceived as a dogmatic and irrational move. As the exchange rate and overseas ETFs tracking the Korean stock market showed increased volatility overnight immediately following the emergency martial law, short-term volatility is likely to expand today in the domestic stock market, accompanied by the outflow of foreign investment funds.”
Some point out that foreign investors' sensitivity has heightened due to this incident. Kim Dae-jun, a researcher at Korea Investment & Securities, analyzed, “Global investors' doubts about Korean governance have increased significantly due to the emergency martial law situation. There is a high possibility that the sensitivity of the won will increase whenever there is an expansion in domestic geopolitical anxieties, such as future escalations in political uncertainty or North Korean provocations.”
Park Sang-hyun, a researcher at IM Securities, remarked, “Amid deepening weakness in domestic fundamentals, the concurrent exit of foreign and domestic funds due to a decline in national creditworthiness will act as a factor pushing up the won-dollar exchange rate. Accordingly, we forecast the upper limit of the won-dollar exchange rate to reach the 1,450 won level in the short term.”
There are also opinions that a close watch on market conditions is necessary. An official from the securities industry stated, “(Since the martial law incident) nothing has changed significantly more than expected. The stock market did not experience as much volatility as feared. However, we are keeping an eye on the extent of future fluctuations. We plan to respond flexibly according to future changes.”