The South Korean stock market's decline is closely tied to political instability, highlighting the interconnectedness of governance and economic performance.
Investor sentiment is heavily influenced by government actions and the perceived stability of political institutions.
If the political crisis continues without resolution, further declines in the stock market and currency are likely, potentially prompting more significant government intervention.
The effectiveness of the equity stabilization fund will be tested in the coming weeks, with its success dependent on broader market conditions and investor confidence.
South Korea's stock market is experiencing significant declines amid a political crisis, with the Kospi Composite Index dropping 5.6% since President Yoon Suk-yeol's controversial martial law declaration. The situation has led investors to seek government intervention, particularly through a proposed 10 trillion won ($7 billion) equity stabilization fund, which authorities are prepared to deploy if necessary. The fund's last activation was during the 2008 financial crisis, and its potential use is being closely monitored as retail investors have withdrawn over 1 trillion won ($698.15 million) in just two sessions.
The South Korean won has also depreciated more than 2% against the US dollar, contributing to the overall negative sentiment in the market. Analysts suggest that while the stabilization fund could alleviate some market volatility, it may not significantly alter global investor perceptions unless the underlying political issues are resolved. Experts caution that the fund's impact might be limited, with predictions placing the KOSPI index between 2,400 and 2,300, indicating a potential psychological barrier for investors.
