Frozen Capital Market... 'Emergency Martial Law' Is Just a Farce, 'Impeachment Crisis' Is More Frightening

Limited Impact of Midnight Martial Law on Financial Markets
Capital Markets Frozen Amid Ongoing Impeachment Uncertainty

Capital market insiders expect that the declaration and lifting of the late-night emergency martial law will have a limited impact on the financial markets, but the rapidly unfolding 'impeachment crisis' will pose a greater risk to the capital markets going forward.

On the 4th, a senior official from the private equity fund (PEF) industry said, "Fortunately, there was no significant damage to the stock market or exchange rates, but since the atmosphere is heading straight into the impeachment phase, a contraction in the capital market due to political instability is unavoidable for the time being." He added, "It seems impossible to prevent the relative value decline of portfolio companies currently being sold."

Currently, the domestic industry and capital markets are undergoing restructuring amid a sharp economic downturn. Large conglomerate affiliates' assets for fundraising and PEF-held assets for portfolio adjustments are flooding the market. Capital market insiders express concerns that the upcoming impeachment crisis will absorb all domestic issues, maximize uncertainty, and rapidly devalue Korean companies in the stock and mergers and acquisitions (M&A) markets.

Companies and financial and investment firms are expected to minimize their movements while monitoring the progress of the impeachment crisis for the time being, and global investors are also expected to minimize their exposure to the Korean market. In this situation, groups such as Lotte and SK Group, which have introduced drastic self-help measures such as affiliate sales for fundraising, find themselves in a difficult position. Companies actively undergoing restructuring to prepare for future businesses are expected to face difficulties securing liquidity for the time being.

A venture capital (VC) industry official said, "Considering the tangible and intangible damages such as the deterioration of the country's image caused by the declaration of martial law, the losses are astronomical," adding, "It will affect various areas, and foreigners' perception of uncertainty is worsening." He said, "Overseas, people receive information through edited footage showing soldiers breaking into the National Assembly windows, making overseas investment and global negotiations inevitably difficult."

The industry views how quickly the political turmoil recovers as the key factor. A capital market insider said, "The government has lost momentum, and public opinion is already decided," adding, "I hope for a quick recovery through voluntary resignation rather than a 'strong versus strong' confrontation."

The securities industry is also closely monitoring the impact of the declaration and lifting of martial law on the financial markets, carefully observing the movements of foreign, institutional, and individual investors. Ji-young Han, a researcher at Kiwoom Securities, said, "Since Korea's unique political uncertainty has intensified, short-term volatility in the domestic stock market is inevitably likely."

Hana Securities Research Center stated, "Although the martial law has been lifted, legal controversies and aftershocks are expected to be significant, so concerns about capital outflows from stocks and funds remain, and the stock market will inevitably undergo short-term adjustments due to uncertainty," adding, "Foreign investors may also partially withdraw investments due to increased volatility and uncertainty."

Meanwhile, President Yoon Suk-yeol declared martial law at 10:25 p.m. the previous night, but around 1 a.m. the next day, the National Assembly passed a motion demanding the lifting of martial law. President Yoon approved this through a Cabinet meeting around 4:30 a.m., lifting the martial law, but confusion surrounding domestic politics, including opposition parties' impeachment demands, is expected to continue for the time being.