[Good Morning Stock Market] "'Emergency Martial Law Situation'... Domestic Stock Market Volatility Expansion Inevitable"

Political Uncertainty Amplified
Early Session Sell-Off Requires Monitoring Exchange Rate Changes Before Immediate Response

President Yoon Suk-yeol declared the lifting of the 'martial law' just six hours after its proclamation, and on the 4th, the Korean stock market, operating normally, is expected to inevitably experience increased volatility due to political uncertainty. However, as the shock to the exchange rate and the overnight futures market somewhat eased during the lifting process, securities experts advised that rather than immediately responding to early morning sell-offs in the stock market, it is necessary to monitor changes in the won-dollar exchange rate and respond accordingly.

President Yoon Suk-yeol announced in an emergency address at 4:30 a.m. on the 4th that the martial law declared last night will be lifted in response to the National Assembly's request. The photo shows President Yoon's emergency address being broadcast on the TV in the Seoul Station waiting area. Photo by Jo Yong-jun

Earlier, President Yoon Suk-yeol proclaimed martial law around 10:30 PM the previous day and lifted it at approximately 4:27 AM on the same day. This was because the National Assembly passed a resolution demanding the lifting of martial law with the approval of 190 members, a majority of the total members.

Due to the proclamation and lifting of martial law, Korean-related assets fluctuated overnight. Immediately after the proclamation, the won-dollar exchange rate surged to the 1,444 won level, and the Morgan Stanley Capital International (MSCI) Korea Index Exchange-Traded Fund (ETF) traded in the U.S. also plummeted by more than 6% at one point. However, as the martial law situation ended in about six hours, the instability in the prices of Korean-related assets somewhat subsided.

The stock market will open normally as usual on this day. After two meetings held early in the morning, the Korea Exchange announced, "Considering comprehensively the prices and trading conditions of Korean securities listed overseas, exchange rate trends, and others, it has been decided to operate the securities market and derivatives market normally today." Accordingly, spot trading will begin at 9:00 AM, and derivatives trading will start at 8:45 AM.

In the short term, increased volatility in the Korean stock market is inevitable. Han Ji-young, a researcher at Kiwoom Securities, analyzed, "Korea's unique political uncertainty has intensified," and added, "The expectation that the 'aggressive net selling trend will end,' which emerged as foreign investors' net purchases of KOSPI (565 billion won) reached the largest scale since August 16, may also retreat." Lee Kyung-min, a researcher at Daishin Securities, said, "After this incident, the expansion of domestic political uncertainty is inevitable. We need to be cautious about short-term volatility expansion."

There is also a possibility that the impact on the stock market will not be significant due to the rapid lifting of martial law. The Ministry of Economy and Finance and financial authorities announced that they will take market stabilization measures after emergency meetings. Researcher Han Ji-young explained, "At this point, it is necessary to observe changes in the won-dollar exchange rate and respond with a wait-and-see approach."

Researcher Lee Kyung-min stated, "Considering that the decline in the exchange rate and overnight futures market narrowed during the lifting process, the intensity of the financial market shock is expected to be limited," and "especially since the domestic stock market and exchange rate market are located in an extremely undervalued area, there is a high possibility that stability will gradually be restored. We maintain the existing stock market outlook and investment strategy."

Na Jung-hwan, a researcher at NH Investment & Securities, said, "The increase in volatility may end as a mere incident," and added, "In this case, there may be a situation where foreign investors temporarily withdraw from the Korean stock market, causing a sharp drop in stock prices, but as the issue is quickly resolved, the impact on stock prices will be limited." He also advised, "Since this is not a factor changing the fundamental strength of the Korean stock market, if stock prices sharply fall in the early trading hours, buying responses are considered effective."

Meanwhile, on the 3rd (local time), the three major indices of the U.S. New York stock market closed mixed, and Korean companies listed on the New York Stock Exchange showed weakness due to the impact of President Yoon Suk-yeol's martial law proclamation.

In the New York stock market, the blue-chip-focused Dow Jones Industrial Average (Dow Jones Index) closed at 44,705.53, down 76.47 points (0.17%) from the previous trading day. The large-cap-focused S&P 500 Index rose 2.73 points (0.05%) to 6,049.88, and the tech-heavy Nasdaq Index rose 76.96 points (0.4%) to 19,480.91, marking a new all-time high again.

Korean company stocks listed on the New York Stock Exchange declined. Coupang (-3.7%), POSCO Holdings (-4.36%), KT (-0.39%), and KB Financial Group (-1.67%) were weak. The decline narrowed somewhat before the close as the National Assembly passed the 'Resolution Demanding the Lifting of Martial Law' in the early morning of the day after the proclamation.