(Bloomberg) — South Korean President Yoon Suk-yul’s surprise decision to impose martial law in South Korea for the first time in more than 40 years — and then reverse course just as quickly — sent shockwaves through the country’s offshore-traded assets and caught fire globally. Markets were caught off guard, at one point sending US Treasury yields lower as traders sought a safe haven from potential instability.
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In an emergency live address to the nation, Yoon surprised voters, lawmakers and investors alike by declaring martial law on Tuesday after accusing the opposition of trying to paralyze his administration.
Yoon said the decision was made to protect freedom and the constitutional order, but the market’s early judgment was swift: ETFs linked to South Korea, its currency and most-traded stocks weakened sharply, while US government bonds and even bitcoin briefly fell. Trapped on a perilous journey towards quality.
Korean stocks and the won then recovered some of their losses after South Korean authorities pledged to provide “unlimited liquidity” to markets as needed and lawmakers voted to request the shock measure be lifted, which Yoon eventually agreed to do. However, the move, however brief, created uncertainty within a major economy and a pillar of global trade, keeping investors on edge.
“This will clearly raise longer-term concerns about investing in Korea,” said Mark Ledger Evans, investment analyst at Ninety One UK Ltd. “A higher risk premium will be needed.”
South Korea’s iShares MSCI exchange-traded fund (ticker EWY) fell as much as 7.1% in US trading, while London-listed Samsung Electronics shares lost as much as 7.5%. The local Korean won fell by up to 2.9% to reach 1444.65 per dollar, which led to losses among currency markets amid weak trading during the New York session.
“Domestic uncertainty is adding to external pressures in recent weeks, as the market begins to price in higher US tariffs under the new Trump administration,” said Arup Chatterjee, a strategist at Wells Fargo Bank in New York.
Trading volume for the $3.9 billion iShares MSCI South Korea ETF reached a record for any full day during the fund’s 20-plus-year life. About 32 million shares had traded hands as of 1:45 pm in New York, about 17 times the 20-day average at this time of day.
Other South Korean interest rates also fell. E-commerce company Coupang Inc. fell. As much as 9.8% in US trading, along with losses in steel processing company Posco Holdings Inc. and KB Financial Group Inc. The Korea Stock Exchange, the country’s main exchange, said Wednesday’s trading was under review.
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