By Reshma Kapadia
South Korea's Parliament voted unanimously to end martial law, according to media reports, hours after President Yoon Suk Yeol put the country under military control in an unexpected announcement Tuesday.
The political drama unfolding in a liberal democracy home to widely owned semiconductor and technology companies like Samsung Electronics and SK Hynix jolted markets. The country's main stock index, the KOSPI, with a market capitalization of $1.4 trillion, was closed for the day when the announcement was made. But the iShares MSCI South Korea exchange-traded fund dropped 3% in New York trading. The South Korean won weakened about 2% against the dollar.
In a televised announcement declaring martial law, Yoon cited opposition parties that had made the country vulnerable to the threat from communist North Korea. He also said the opposition party that controls Parliament was holding the country "hostage," describing the rejection of his budget and other bills as threatening the constitutional order of the country, according to The Wall Street Journal.
There weren't any reports of new military threats to the country that could have prompted the declaration. Yoon didn't say what specific measures would be taken now.
The martial law declaration is the first since South Korea was under military rule in the 1980s, a significant move that some analysts expect will lead to the impeachment and removal of Yoon and could tip another country into political turmoil.
Analysts stressed caution in the coming 24 to 48 hours, with Rory Green, head of Asia research at GlobalData TS Lombard, noting broad opposition to martial law at the societal level, as well as within Yoon's party. "Yoon lacks a civil support base and is likely to be impeached eventually following large-scale protests in a similar manner to previous leaders," Green said, adding that protests could be bloody and Korean assets will stay under pressure until the situation is resolved.
American depositary receipts (ADRs) tied to South Korean companies were tumbling early Tuesday. Electric utility Korea Electric Power fell 3%, steel maker POSCO Holdings dropped 4.5%, and wireless telecommunications operator SK Telecom was down 2%. Shares in U.S.-listed Coupang, an online retailer that sells goods in South Korea, sank 4.7%.
Yoon, who was elected to a five-year term in 2022, has had under 20% approval ratings and has struggled to govern. "Yoon may be just seeking to reset the political scene. I don't think he is doing this to be dictator for life or have military in charge so that is different from the coups that brought others into power in the past through martial law, " said Sydney Seiler, senior advisor and Korea chair at the Center for Strategic and International Studies and formerly the national intelligence officer for North Korea at the National Intelligence Council.
The economic and longer-term market fallout -- including risks to the broader semiconductor supply chain -- hinges on the duration and severity of martial law, Green said. The result could create volatility in South Korean stocks, including the world's largest semiconductor company Samsung, chip maker SK Hynix, and battery company LG Energy Solution, as well as car makers Hyundai and Kia, once the nation's market opens.
If the situation persists, the fallout could spread not just through the chip supply chain but also more broadly as Korea's electronics firms are major players in the global battery industry. LG and SK Innovation are the world's third- and fifth-largest electric vehicle battery manufacturers, with 16% and 6% global market share as of last year, according to data from EV-volumes.com.
"Assuming the border remains peaceful and beyond the inevitable short-term shock to financial markets, a period of political instability lies ahead in South Korea that will dent confidence in the economy," Capital Economics Chief Asia economist Mark Williams wrote in a note to clients.
At least one investor, Jason Hsu, founder of Rayliant Global Advisors, sees the political situation creating a buying opportunity to pick up critical companies in the semiconductor supply chain on the cheap that are still going to benefit from the secular bull market in the chips sector on the back of trends like artificial intelligence and a move to diversify supply chains away from China. "None of that has to do with the political landscape," said Hsu, who chalks up the situation to a president who has lost support.
That was also the first take from Derrick Irwin, co-head of Intrinsic Emerging Markets Equity at Allspring: "It seems more related to domestic and internal politics than to the business environment. While unusual, this isn't the first time martial law has been declared."
One warning for investors, though, is that the political turmoil unfolding in South Korea has similarities to the upheavals unfolding in Europe and even the U.S., often fueled by a populace feeling economic angst. That could mean investors need to rethink their assumptions.
"Trump's win in the U.S. was the latest and most vivid example of leaders who may believe solutions to the problems the populace face are via measures that are detrimental to investors," Seiler said.
--Brian Swint, George Glover, and Elsa Ohlen contributed to this article
Write to Reshma Kapadia at reshma.kapadia@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 03, 2024 13:30 ET (18:30 GMT)
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