By Ankur Banerjee
SINGAPORE (Reuters) – Asian equities stumbled on Wednesday while currencies were volatile as traders scrambled to contend with the political storm in South Korea, where martial law was imposed and subsequently lifted hours later.
South Korea’s won strengthened in early trading buoyed by suspected intervention but remained close to the two-year low against the dollar it hit late on Tuesday.
The benchmark KOSPI index was down nearly 2%, taking its year-to-date losses to over 7%, making it the worst performing major stock market in Asia this year.
That left the MSCI’s broadest index of Asia-Pacific shares outside Japan, which counts Samsung Electronics as one of its top constituents, down 0.32% on Wednesday.
South Korean President Yoon Suk Yeol said on Wednesday he would lift a surprise martial law declaration he had imposed just hours before, backing down in a standoff with parliament which roundly rejected his attempt to ban political activity.
“Martial law itself has been lifted but this incident creates more uncertainty in the political landscape and the economy,” said Min Joo Kang, senior economist at ING.
“We are concerned that these events could impact South Korea’s sovereign credit rating, although this is uncertain at this stage. However, this is a scenario that could happen.”
South Korea’s finance ministry said it was prepared to deploy “unlimited” liquidity into financial markets if needed, with the Yonhap news agency saying the financial regulator was ready to deploy 10 trillion won ($7.07 billion) in a stock market stabilisation fund. The finance minister holds a press conference at 0120 GMT.
“A bit of uncertainty here given how the events played … that can fuel some rush to safety. But Korean authorities appear to be moving quickly to stabilise markets, and the impact is likely to be short-lived,” said Charu Chanana, chief investment strategist at Saxo.
Still, the jolt to the market from East Asia stoked further worries of uncertainties around the globe, with investors already reeling from the political turmoil in France that has weighed on the euro, which was down 0.11% at $1.04975.
French bond futures fell 0.13% while European stock futures was 0.14% lower ahead of French lawmakers’ vote on Wednesday on no-confidence motions which are all but certain to oust the fragile coalition of Prime Minister Michel Barnier.
“If the government collapses, an emergency legislation will likely be adopted to avoid a government shutdown … the spread between French and German 10-year government bond yields can further move against the euro,” said Carol Kong, currency strategist at Commonwealth Bank of Australia.