“Martial Law Shock” Foreign Investors Sell 650 Billion Won, Impact on South Korea

The state of emergency declared on the 4th was lifted after about six hours, but the impact on the Korean economy is likely to continue for some time. There are concerns that South Korea’s international creditworthiness will decline amid a number of domestic and international challenges, including exports and domestic demand. Resolving the situation quickly has become the top priority, lest it slow down the South Korean government’s policy-making momentum. First of all, there is a risk that its external creditworthiness will be hit. This is because it clearly shows the political risks facing South Korea. International rating agencies select “political stability” as one of the important evaluation factors when assessing the credit of each country. A decline in external creditworthiness will lead to foreign investors fleeing the country. Kang In-soo, a professor of economics at Sookmyung Women’s University, said on the 4th, “Now that the political risk has been made public, the country’s credit rating may drop by one or two notches in the future.” A source from Korea Investment & Securities said, “The likelihood of the rating agencies’ outlook for Korea changing has increased, and if a change occurs, it could also change the way overseas investors view Korean stocks. With the rating at risk of change and the won depreciating rapidly, the trend of foreigners avoiding Korea may continue.” However, Kim Eng Tang, managing director of Standard & Poor’s (S&P), said, “Since martial law has been lifted, we believe that South Korea’s institutional foundations are solid. “We see no practical reason to change South Korea’s rating (under the current circumstances).” They are also negative about exports, which have a bleak outlook ahead of the inauguration of a second Trump administration. Export growth slowed in the October-December period, with the growth rate falling to 4.6% in October and 1.4% in November. Kang Seong-jin, a professor of economics at Korea University, expressed concern that “if other countries determine that Korea is not a safe supply chain as the global war for supply chains rages on, it could have a negative impact on exports.” The martial law is also a negative factor for stagnant domestic demand. “Consumer sentiment was already sluggish, and the damage came just before the end of the year spending season,” said Lee Jeong-hwan, a professor at Hanyang University’s School of Economics and Finance. “If consumption is reduced, domestic demand will shrink, which could lead to a vicious cycle in which companies cut back on investment.” According to the Korea Exchange, the Korea Composite Stock Price Index (KOSPI) closed at 2,464, down 36.1 points (1.44%) from the previous trading day. The KOSDAQ index also fell 13.65 points (1.98%) to 677.15. The KOSPI index fell by as much as 2.31 percent, but the decline was reduced after the financial authorities revealed their intention to actively intervene by announcing that they could inject 10 trillion won into the stock market stabilization fund. Although the decline in the KOSPI was not as large as expected, the trend of foreign investment funds leaving the country was strong. On this day, foreign investors sold 407.8 billion won in the KOSPI spot market and 242.5 billion won in the KOSPI 200 futures market, totaling 650.3 billion won. Most of the top market capitalization stocks also fell in value. Samsung Electronics saw a drop of nearly 3%, but closed at 53,100 won, down 0.93%. LG Energy Solutions fell 2.02%, Samsung Biologics fell 0.62%, Hyundai Motor fell 2.56%, and Celltrion fell 2.09%. JoongAng Ilbo Japanese Edition 2024.12.05 08:04.

「戒厳ショック」外国人投資家６５００億ウォン売り越し…韓国の対外信用度に赤信号（１）

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