South Korea’s stock market and currency fell for a second straight day on Dec. 5, following the country’s first declaration of martial law in 45 years. The KOSPI index closed 0.9% lower at 2,441.85, while the KOSDAQ dropped 0.92% to 670.94. Despite a surge in U.S. markets—with the Dow, Nasdaq, and S&P 500 all hitting record highs the previous day—positive global cues failed to lift domestic sentiment.
Foreign investors net sold 320 billion won ($241 million) in shares on the main exchange, extending their outflows from the previous day when they offloaded 407 billion won.
The South Korean won also weakened further, with the exchange rate rising 5 won to 1,415.1 won per dollar. This marked the second consecutive day of depreciation after a 7.2-won increase in the dollar-won rate on Dec. 4.
Amid growing market anxiety, the Bank of Korea sought to reassure investors. Governor Rhee Chang-yong addressed the international reaction during a press conference, stating, “While domestic observers may have anticipated such developments given ongoing political tensions, the martial law announcement came as a complete shock to foreign markets. My phone and email have been inundated with inquiries.”
On the currency outlook, Rhee remarked, “Martial law is undoubtedly a negative factor that has pushed the won-dollar rate higher. However, absent additional shocks, I believe the rate will gradually stabilize.”
Deputy Prime Minister and Finance Minister Choi Sang-mok met with International Monetary Fund economic counsellor Pierre-Olivier Gourinchas in Seoul to explain the government’s response to the crisis.
Global credit rating agencies also weighed in on the fallout. Moody’s warned that if the political crisis remains unresolved, it could impair the government’s ability to pass critical legislation and address pressing issues, posing risks to South Korea’s credit rating. Standard & Poor’s described the martial law declaration as “highly unexpected for a sovereign nation with an AA credit rating.” The agency added that restoring investor confidence and assessing the full impact on South Korea’s economy, financial markets, and credit metrics will take time.
