South Korean President Yoon Suk-yeol. — Reuters
KUALA LUMPUR: Malaysian investors are keeping an eye on South Korea’s political developments given their importance in regional economic growth although they have minimal impact on Malaysia.
UOB Kay Hian Wealth Advisors’ Investment Research head Mohd Sedek Jantan said the situation warrants monitoring because sustained instability could create ripple effects.
“Malaysia’s stable economic fundamentals and strong trade ties provide a solid foundation but ongoing engagement with regional developments will be essential to managing potential long-term risks.
“Moreover, South Korea’s solid economic performance offers reassurance that the broader economic environment remains robust, despite the political challenges,” he told Bernama.
South Korea’s financial markets were rattled after President Yoon Suk-yeol’s sudden declaration of martial law on Tuesday.
This caused the US dollar/South Korean won exchange rate to surge to 1,440.
The National Assembly unanimously overturned the decision a day later and South Korean authorities have since reassured markets that financial operations will proceed as usual.
This was followed by the Bank of Korea pledging unlimited liquidity support and scheduling an emergency meeting this morning.
Despite the swift reversal, Mohd Sedek noted that concerns about South Korea’s political stability have persisted.
“Reports indicated that the martial law declaration was a result of growing tensions between President Yoon and the opposition-controlled National Assembly, with limited backing from key figures within Yoon’s party.
“With martial law now revoked and likely intervention from the Bank of Korea, the won is expected to recover its losses, and the immediate impact on South Korean equities should remain contained,” he said.
Nonetheless, the situation has left lingering concerns over South Korea’s political and economic stability, Mohd Sedek said.
Furthermore, during New York trading hours, South Korean assets, especially the won and South Korea-focused exchange-traded funds experienced significant pressure, although some of the losses were recovered by the end of the session, he said.
In the Korean Treasury Bond market, foreign investors are expected to reduce their holdings due to heightened uncertainty.
This is set to push bond yields higher while the Bank of Korea’s dovish stance and liquidity pledges are likely to support short-term bond yields.
“These developments highlight South Korea’s fragile political environment and the risks of prolonged policy paralysis, which could weigh on investor sentiment and hinder foreign equity inflows,” he said. — Bernama
