Martial law fiasco hits equity, FX markets

Citizens rally demanding the resignation of President Yoon Suk Yeol in front of the National Assembly in Seoul, Saturday. Korea Times photo by Shim Hyun-chul

Foreign investors net sold over 1 trillion won ($818 million) from Wednesday to Friday, unsettled by the aftermath of the martial law fiasco since late Tuesday, market watchers said Sunday.

Most pronounced were the net selloffs of financial stocks. Foreign stakes in the previously strong financial groups declined as a result.

Overall, a total of 953 listed shares registered a 52-week low over the three days, accounting for over a third of the total listed firms. Of them, 267 were listed on the main bourse KOSPI, while the remaining 686 were listed on the secondary tech-heavy Kosdaq.

Also volatile was the Korean currency against the U.S. dollar. The Korean won was the worst-performing among major currencies last week. It plunged 24.5 won, as measured by closing price, to a two-year low of over 1,444 won, Wednesday. It has since bounced back to 1,410 won level but took a dive to an intraday low of 1,429.20 won, Friday.

However, risks remain broadly contained, reassured by the financial authorities' pledge to expand unlimited, ad-hoc repurchase agreements (repos) and injection of a combined 50 trillion won in stock stabilization funds and Korea Treasury Bond (KTB) stabilization funds.

According to financial market data, foreign investors net sold 1.085 trillion won over the past three trading sessions.

Wednesday’s figure was the highest at 407.1 billion won, followed by 317.3 billion won, Thursday, and 284.1 billion won, Friday.

A combined 709.6 billion won in financial shares was sold off. The figure was 255.1 billion won, Wednesday, followed by 278.6 billion won the next day. It stood at 175.9 billion won, Friday.

This was the first time this year for the foreign net selloff in the financial shares to exceed 200 billion won for two days straight.

Foreign stakes in turn dipped to 36.12 percent, Friday, down from 37.19 percent three days earlier.

The loss of over 1 percentage point was the largest drop in foreign stakes among the 21 sectors.

For context, the drop in the overall foreign stakes in the KOSPI was limited to 0.05 percentage points, down to 32.38 percent from 32.43 percent.

Insurance, steel and metals, brokerages, transport and logistics and telecommunications stocks lost between a range of 0.16 and 0.6 percentage points.

Large-cap manufacturing and electronics saw their foreign stakes climb between a range of 0.15 percentage points and 0.22 percentage points.

Foreign stakes in KB Financial, Shinhan Financial, Hana Financial and Woori Financial Group all fell by about 1 percentage point.

Their share prices plummeted between a range of 15.7 percent and 5.9 percent, on concerns that the rapid weakening Korean currency and business condition uncertainties will lead to lower common equity tier 1 (CET1) ratios. The ratio, a measure of financial soundness, is tied closely to shareholder returns, including stock buyback for cancellation and dividend payouts.

The Korean currency plunged to 1,442 won at 12:20 a.m. Wednesday, the lowest since October 2022.

The overnight depreciation of 41.5 won was the greatest since the previous intraday loss of 49.9 won March 19, 2020, at the height of COVID-19 fears and the acute liquidity crunch in the short-term money market.

The won’s weakening of 1.86 percent last week is notable, since the euro, the yen, the British pound and the Taiwanese dollar all appreciated relative to the U.S. dollar.

Financial Services Commission Chairman Kim Byoung-hwan is expected to convene a meeting of heads of financial groups as well as the three state-owned lenders this week.

The previous meeting planned over the weekend was postponed, due to a failed impeachment motion against President Yoon Suk Yeol, Saturday.

The chair is likely to reassure foreign investors about the government commitment to the Corporate Value-up Program, regardless of — and despite — the ongoing political turmoil.