Asian markets were rattled on Wednesday following political upheaval in South Korea, where a brief imposition of martial law created uncertainty across financial markets.
The South Korean won saw volatile trading, briefly strengthening on suspected intervention but remaining near its two-year low against the dollar.
Meanwhile, the benchmark KOSPI index dropped nearly 2%, cementing its position as Asia’s worst-performing stock market this year.
The MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.32%, weighed down by a decline in top constituents like Samsung Electronics.
Other Asia-Pacific markets traded mostly lower as investors responded to political developments in South Korea and fresh economic data from the region.
Japan’s Nikkei 225 slipped 0.4%, while the broader Topix index also declined by 0.4%.
In contrast, Hong Kong’s Hang Seng Index edged up 0.1%, bucking the broader regional trend. Mainland China’s CSI 300 dipped 0.2%, reflecting cautious sentiment among investors.
Meanwhile, Australia’s GDP data revealed slower-than-expected economic growth in the third quarter. Persistent inflation and elevated borrowing costs continued to weigh on the economy, dampening investor confidence.
The S&P/ASX 200 in Australia dropped 0.38%, closing the trading session at 8,462.6.
South Korean stocks experienced significant volatility overnight in the US markets as political unrest gripped the world’s 13th-largest economy.
The iShares MSCI South Korea ETF (EWY), which tracks over 90 large and mid-cap South Korean companies, plunged as much as 7% during trading, hitting a 52-week low.
However, the ETF pared losses later in the session, closing down 1.6% after President Yoon announced the lifting of his emergency declaration, following the National Assembly’s vote to overturn his martial law decree.
In contrast, U.S. markets were steadier.
The S&P 500 edged up 0.05%, while the Nasdaq Composite gained 0.4%, with both indexes reaching record highs.
The Dow Jones Industrial Average, however, lagged, slipping nearly 0.2%.
Government intervention to stabilize markets
In response to the turmoil, South Korea’s finance ministry announced readiness to inject “unlimited” liquidity into financial markets.
Reports indicated that the financial regulator had prepared a 10 trillion won ($7.07 billion) stock market stabilization fund.
The finance minister addressed the media early Wednesday, assuring swift measures to prevent prolonged instability.
Charu Chanana, Chief Investment Strategist at Saxo, told news agency Reuters:
Korean authorities are acting decisively to stabilize the market. While the initial shock might push investors toward safer assets, the long-term impact is expected to be contained.
Global impacts and broader market trends
The uncertainty from South Korea added to existing global market jitters, including political unrest in France.
The euro edged lower by 0.11%, trading at $1.04975, as French lawmakers prepared for critical no-confidence votes against Prime Minister Michel Barnier’s coalition.
French bond futures fell 0.13%, while European stock futures slipped 0.14%.
Analysts warned that a collapse of the French government could widen bond yield spreads, further pressuring the euro.
On the macroeconomic front, US markets remain focused on upcoming Federal Reserve cues.
Recent labor market data showed an orderly slowdown, with job openings increasing in October and layoffs seeing their sharpest drop in 18 months.
Markets are pricing in a 72% probability of a 25-basis-point rate cut at the Fed’s next meeting, with more cuts expected in 2024.
Federal Reserve Chair Jerome Powell’s comments on Wednesday will likely shape near-term market sentiment.
Commodities and currency movements
The dollar index rose 0.12% to 106.45, buoyed by safe-haven demand amid global uncertainties.
Gold prices slipped 0.17% to $2,639 as the dollar strengthened.
Oil prices remained stable after a 2% gain on Tuesday, fueled by geopolitical tensions in the Middle East and anticipation of OPEC+ extending supply cuts.
As political tensions in South Korea ease, focus shifts to global central bank policies and geopolitical developments.
Investors will watch closely for signs of stabilization in Asian markets and potential knock-on effects on global financial conditions.
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