[Click eStock] Revisiting Financial Market Shocks During Past Presidential Impeachment Crisis

Since the unprecedented situation of President Yoon Suk-yeol declaring martial law, domestic political uncertainty has been increasing. In response, the financial market is paying attention to the impact on the market related to presidential impeachment, a case that previously heightened political uncertainty in the domestic financial market.

On the 5th, Kiwoom Securities analyzed the market situations during the representative past presidential impeachment cases of 2004 and 2016 in its report titled 'Past Domestic Political Uncertainty and Financial Market Impact.' During the impeachment of the late President Roh Moo-hyun (2004), the National Assembly passed the impeachment motion on March 12, 2004, citing violation of election neutrality obligations. Then, in May 2004, the Constitutional Court ruled that the impeachment grounds were not serious and dismissed the impeachment motion. Looking at the financial market trends at that time, the financial market was temporarily shocked by the increased political uncertainty following the passage of the impeachment motion. On the day the impeachment motion was passed (March 12), the KOSPI stood at 848.8 points, down 2.43% from the previous day, the won-dollar exchange rate rose by 11 won to 1,180.5 won, and the 3-year government bond yield increased by 3.0 basis points to 4.570%. However, on May 14, 2004, when the Constitutional Court dismissed the impeachment motion, the KOSPI dropped 2.74% to 768.46 points compared to the previous day, then further declined to 728.98 points by the next trading day (May 17) before rebounding.

Meanwhile, the won-dollar exchange rate turned downward to 1,186 won on the day the impeachment motion was dismissed and fell to 1,155 won by the end of June that year. The 3-year government bond yield dropped by 1.0 basis point to 4.380% and continued to decline as the possibility of a rate cut in August 2004 was reflected. At that time, concerns about weakening growth due to delayed recovery in private consumption and facility investment, sustained high oil prices, and potential global IT industry slowdown led to two base rate cuts in August and November 2004.

During the impeachment of former President Park Geun-hye (2016), the National Assembly passed the impeachment motion on December 9, 2016, due to incidents such as the 'Choi Soon-sil Gate.' Then, on March 10, 2017, the Constitutional Court unanimously upheld the impeachment motion with an 8-0 decision. Unlike the impeachment of the late President Roh Moo-hyun, Park Geun-hye's impeachment occurred after a prolonged period of political turmoil, so the possibility of impeachment was somewhat predictable within the financial market, resulting in limited market shock. Additionally, external factors such as the election of President Trump in the U.S. at the end of 2016 influenced the financial market, relatively limiting the impact of internal political variables.

Examining the financial market trends at that time, on the day the impeachment motion was passed (December 9), the KOSPI was at 2,024.69 points, down 0.31% from the previous day, and the won-dollar exchange rate rose by about 7 won to 1,165.95 won. However, the stronger U.S. dollar following President Trump's election and external conditions had a greater impact, and the increase was limited compared to the impeachment of former President Roh Moo-hyun.

The 3-year government bond yield rose by 2.6 basis points to 1.735%, which was judged to be more influenced by the external interest rate rise following Trump's election. Subsequently, on March 10, 2017, when the Constitutional Court upheld the impeachment motion, the KOSPI rose 0.30% to 2,097.35 points from the previous day, and the won-dollar exchange rate continued to fall from 1,157.4 won to as low as 1,118 won. The 3-year government bond yield also fell by 2.3 basis points to 1.767% and later dropped to 1.65%, influenced more by the U.S. Federal Reserve FOMC than domestic factors. At that time, the U.S. Federal Reserve's March FOMC meeting was expected to be hawkish but was evaluated as more dovish than expected, causing interest rates to rise initially and then decline.