South Korean Stocks Tumble Amid Martial Law Declaration and Political Turmoil

South Korean financial markets faced a sharp downturn following President Yoon Suk Yeol’s announcement of martial law on Tuesday evening. The decision was attributed to threats from North Korea and political strife involving the opposition party.

Although the country’s parliament swiftly overturned the martial law order by popular vote, providing some relief to markets, the declaration initially sent shockwaves through both domestic and international trading.

The iShares MSCI South Korea ETF plunged 7% in after-hours trading, reflecting investor fears. Key South Korean firms with shares listed in the U.S. also experienced significant losses: Coupang, a major e-commerce platform, dropped 10%; KB Financial Group fell 6%; and steelmaker POSCO Holdings declined 8%. Additionally, the South Korean won weakened by as much as 3% against the U.S. dollar.

Yoon’s Justification and Political Fallout

President Yoon, representing the conservative People Power Party since his election in 2022, addressed the nation in a televised speech Tuesday night. He accused the opposition of stalling governance by blocking budget proposals and filing impeachment motions against 22 officials.

“In defense of the free Republic of Korea, I declare martial law to eliminate pro-North Korean forces and safeguard our constitutional freedoms,” Yoon stated, calling the move a necessary step to counter alleged threats from North Korean-backed actors. His remarks marked the first martial law declaration in South Korea since 1980 during its military rule era.

The presidential decree banned political activities by the parliament and imposed restrictions on protests and rallies. However, lawmakers promptly convened to challenge the order, overturning it in a Wednesday morning vote.

Market Stabilization Efforts

Despite the political uncertainty, South Korean stocks regained some stability after the parliamentary vote and reassurances from government finance officials, who pledged “unlimited liquidity” to support the market. The iShares MSCI South Korea ETF recovered some losses, closing down 3%, while Coupang’s shares pared declines to 4%.

President Yoon has since announced plans to convene his cabinet to lift martial law, signaling potential de-escalation. Market observers remain cautious, noting that the situation underscores vulnerabilities in the region’s political and economic landscape.