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By Cynthia Kim
SEOUL (Reuters) – South Korea’s Finance Ministry said on Wednesday it was ready to invest “unrestrictedly” in financial markets after President Yoon Suk Yeol withdrew a martial law declaration he had issued last night that had caused a decades-long decline in profits.
The announcement came after Finance Minister Choi Sang-mok and Bank of Korea Governor Rhee Chang-yong held emergency talks overnight, and as the central bank’s executive board met unexpectedly to approve measures to rescue the debt market.
Although the financial markets started to react on Wednesday trading, with big gains and stocks reducing some losses, investors remain wary of political stability in South Korea for a long time, which has been trying to make its markets around the world.
“All financial services, FX markets and stock markets will function smoothly,” the government said in a statement.
“We will inject unlimited amounts into stocks, bonds, the short-term money market and the forex market for now until it stabilizes.”
The BOK said it will start special repo operations from Wednesday to help local financial institutions manage the market.
It also said it will relax the repo collateral policy by accepting bank statements issued by other public sector enterprises.
The finance minister added that he was ready to send 10 trillion ($7.07 billion) into the stock market fund at any time, Yonhap news agency reported.
South Korea’s gainer gained 0.8% as of 0212 GMT, a two-year low of 1,442.0 hits overnight after Yoon’s shock martial law announcement.
Foreign investors suspect that the authorities sold dollars as part of the control, intervening strongly when the markets opened to reduce the decline in the currency they won.
South Korea’s parliament, with 190 of its 300 members present, unanimously approved a bill calling for martial law to be lifted.
Korean shares fell 2% on Wednesday as chipmaker Samsung Electronics ( KS: ) fell 1.31% and battery maker LG Energy Solution fell 2.64%.
The series and its winners are some of the most successful shows in Asia this year.
Overnight, US stocks listed in South Korea fell, while New York-traded products including the iShares MSCI South Korea ETF and the Franklin South Korea ETF lost about 1% each.
Daniel Tan, Singapore portfolio manager at Grasshopper Asset Management, said that in the long term, this event will emphasize the “Korean Discount”, which refers to the tendency for local companies to have lower prices than their international counterparts.
“The ‘Discount Korea’ indicator, the Korean KOSPI index is currently trading at 0.8 over a year’s worth, while the stock is close to 3 times,” said Tan. “Investors may need more capital to invest in successful and Korean stocks.”
FINANCIAL ACTIVITIES
The political turmoil comes as Yoon and the opposition-run legislature clash over finances and other issues.
The opposition Democratic Party last week cut ¥4.1 trillion from the Yoon government’s proposed ¥677.4 trillion ($470.7 billion) budget, putting the legislature on the hook for spending.
The Speaker of Parliament on Monday suspended the revised budget for a final vote.
A successful budget intervention by the opposition would seriously damage Yoon’s small government and risk a deficit at a time when export growth is cooling.
“The negative impact on the economy and financial market may be short-lived as political and economic uncertainty can be quickly reduced due to a quick response,” Citi economist Kim Jin-wook said in a report.
