Unrest in South Korea… How will it affect investor confidence?

Yoon now faces possible impeachment and even jail after botched political maneuvers have left him severely isolated and seemingly running out of time, even though his term is officially set to run until 2027.

A report in the British newspaper “Financial Times” quoted Ji Wook Shin, professor of contemporary Korean affairs at Stanford University, as saying: Korean President He has two options: Resignation Or face isolation measures.

Analysts described the move as an act of desperation by an isolated and impulsive leader, trapped between… the economy Disputed, historically low approval ratings and an opposition-controlled parliament.

Yoon’s apparent calculation that a bold declaration of emergency will rally right-wing political forces behind him appears spectacular, analysts say, leaving him politically and legally more vulnerable than ever, especially given his split in the state. The divisions were clearly evident in Yoon’s invocation of the specter of influence North Korean in Civil.

“The way the emergency declaration was implemented is emblematic of Yoon’s presidency in general: poor planning and worse execution,” said Karl Friedhoff, a Korea expert at the Chicago Council on Global Affairs, rather than face impeachment over a series of personal issues. political scandals, will face impeachment proceedings for coup attempt.

A coalition of lawmakers from South Korea’s opposition parties introduced a bill to impeach Yun on Wednesday afternoon, the spokesman’s office for the main opposition Democratic Party said. President Yun’s office announced Wednesday that his chief of staff and his senior aides had resigned.

As for the direct reactions to the events witnessed by the country; South Korean markets fell on Wednesday amid pressure on President Yoon Suk-yeol to resign after he imposed and then lifted a state of emergency decree within hours.

• The country’s Kospi index fell 1.44 percent to 2,464 points and the Kosdak index fell 1.98 percent to 677.15 points, recovering some losses after falling more than 2 percent earlier in the day.
• The return is stopped Bonds South Korea’s 10-year note reported a 13-day slide and last traded at 2,720.
• Other markets in the Asia-Pacific region fell as investors understood events in… South Korea.

Erosion of investor confidence

In a report by the American network “CNBC”, reviewed by the site “Ektisad Sky News Arabia”, analysts state that the political turmoil in the country “will lead to erosion… Investor confidence in the country for a long time.

David Riedel, founder and president of Riedel Research, said:

• Political turmoil in South Korea will affect investor confidence for a long time to come.
• “It will take some time for long-term investors to feel confident and comfortable returning to South Korea in any meaningful way.”
• President Yoon Suk-yeol’s move to impose martial law and later lift it was a “misstep and poor planning”.
• Nuclear energy, cosmetics and defense will be among the sectors insulated from the ongoing political uncertainty.

Korean currency

For his part, in light of the fear of financial instability, he announced Bank of Korea It will improve short-term liquidity and implement measures to stabilize the foreign exchange market as needed, following an emergency meeting of the Board of Directors. It will also provide all the private loans needed to pump money into the market, he added.

Earlier, Yonhap news agency reported that the country’s top financial regulator is ready to inject 10 trillion won ($7.07 billion) into the stock market’s stabilization fund at any time to calm market sentiment.

Against this background, RBC Capital’s head of FX strategy in Asia, Alvin Tan, said in a note on Wednesday:

• The South Korean won is likely to weaken further to trade at 1450.0 against the US dollar in the coming months, despite the Bank of Korea’s efforts to “try to overcome the pressures”.
• “Domestic political turmoil will exacerbate bearish sentiment around the Korean won, although slowing growth and a potential trade war between the US and China next year will remain the biggest drivers.”

Reuters previously reported that South Korean financial authorities were suspected of selling US dollars in the local market early on Wednesday in an attempt to limit the decline in the Korean won.

register South Korean won The price last traded at 1,416.94 per dollar on Wednesday, recovering from a sharp overnight slide that pushed the won to its weakest level since late 2022.

The Bank of Korea said, “As we have announced with the government, we will provide sufficient liquidity for a limited period until the financial and foreign exchange markets stabilize,” confirming a pledge made earlier in the day by South Korean Finance Minister Choi Sang-mook.

Broader economic implications

Natikis Bank economist Trinh Nguyen says:

• economy of South Korea It is already suffering from weak domestic demand, declining exports and a downturn in the semiconductor market.
• “We need a strong government that will have a financially supported budget, not only in the short term, but also in the long term to deal with the many challenges.”

In this context, professor of international economics, Dr. Ali Al-Idrissi, confirms in exclusive statements to the website “Ektisad Sky News Arabia” that any tensions or political unrest in South Korea could have wide repercussions on the global economy due to its strategic location and economic importance, especially in the areas of technology, manufacturing and global chains supply.

Al-Idrissi explains the potential consequences for the global economy as follows:

Impact on the technology and electronics sector:

• South Korea is home to large companies such as Samsung and LG and SK Hinik.
• Any political unrest could affect the production of microchips and semiconductors, a vital sector for many industries, from cars to smartphones.
• A lack of supplies from these companies will lead to global prices rising and supply chains being disrupted.

Global trade disruption:

• South Korea is one of the largest exporters of cars, ships and heavy industry.
• Any disruption to port operations or production will affect the flow of trade, particularly in Asia and Europe.

Impact on financial markets:

• South Korea is one of the largest economies in Asia, and its political turmoil can create instability in regional and global financial markets.
• Other Asian currencies, such as the Japanese yen or the Chinese yuan, may face fluctuations as a result of capital outflows from the region.

Impact on energy prices:

• Although South Korea is not a major energy producer, it is a major importer of oil and natural gas.
• Any tensions could increase demand for alternative energy, which could put pressure, one way or another, on global markets.

Automotive Supply Chains:

• Companies such as Kia and Hyundai rely on South Korea as a major manufacturing hub.
• Any stoppage of local production will affect global deliveries of cars and their parts.

As for the biggest losers if unrest spreads domestically, Al-Idrisi believes that internationally, the major industrialized countries could be among the most prominently affected, given that countries such as the United States, Japan and the European Union rely heavily on semiconductor and technological products from South Korea. The lack of these products will affect the advanced technology industries in these countries.

Developing economies may also be affected in one way or another. For example, Southeast Asian countries and China depend on South Korea as a source of technology and industrial expertise. Any disruption will greatly affect these countries.

Global companies are not immune to the fallout, as major electronics companies that rely on Samsung and SK Hinik for component supplies could suffer disruptions to their supply chains. Global auto companies that rely on Korean semiconductors will also be affected.

Local consequences

As for the impact on South Korea’s local economy, the professor of international economics points to a number of potential impacts, including:

• Decline in economic growth: due to disruption of production and exports.
• Fall in financial markets: with the exit of foreign investors.
• Unemployment rises: if factories stop or the service sector is damaged.

The markets are shaking

A report by Business Insider indicates that the Korean president’s retreat from the issue has not been enough to calm economic concerns raised by the turmoil, citing a slide in the country’s financial markets on Wednesday and a fall in the won.

Companies in the country, including South Korea’s SK Group, a group of semiconductor and energy companies, and Korean shipbuilder HD Hyundai, hosted emergency executive meetings in the early hours of Wednesday, according to Bloomberg.

“We are concerned that these developments could affect South Korea’s sovereign credit rating, although this is uncertain at this stage,” Min Joo Kan, chief economist at ING Economics in Seoul, wrote in a research note.

In an exclusive interview with the Ektisad Sky News Arabia website, Abu Bakr Al-Deeb, adviser to the Arab Center for Studies and Research, and researcher of international relations and political economy, Abu Bakr Al-Deeb, emphasizes that South Korea’s economy ranks 14 on a global level, and is expected to soon rise to 12th place, reflecting the strength of the Korean economy as a major manufacturing and exporting nation, particularly in areas such as automobiles and electronics, which are essential to global supply chains.

Therefore, he explains that any political or economic shock in South Korea could lead to major unrest in… Global supply chainswhich in turn will affect International tradeEmphasizing that similar effects were observed after the war in UkraineThe world has witnessed rising costs shipping And raise rates Inflation Prices are global.

He confirms that South Korea has extensive economic partnerships with many countries in the world, especially in… Technological industries And carsmeaning that any disruptions to its economy will negatively impact these industries globally, explaining that any tensions in South Korea could hinder its role as a key strategic ally of the United States in the face of North Korea, China and Russia.

Al-Deeb points out that these growing tensions in the country could open the way for competitors such as: Chinawhich may benefit economically from this crisis due to competing industries, despite not being directly involved in political tensions.

He warns that any crisis in South Korea could reshape the map of the global economy and create new challenges for supply chains, requiring global attention to address these situations with caution.