Foreign companies in South Korea disrupted by martial law

"We stayed up monitoring fluctuating exchange rates. While there was no immediate impact on financial markets, the depreciation linked to currency volatility will affect our product valuation," a manager of a foreign retail firm told the Korean Herald.

South Korean President Yoon Suk Yeol on Tuesday declared martial law, vowing to eradicate "anti-state forces" and restore order in the country.

A man reads an extra edition newspaper in downtown Seoul on December 4, 2024, after martial law was lifted. Photo by AFP

Military personnel and vehicles were quickly deployed to control protests in Seoul and blocked lawmakers from entering the National Assembly building.

The martial law, however, was lifted by the president within hours, as lawmakers voted unanimously early Wednesday to remove its effect.

The chaos sent the South Korean won to a two-year low against the U.S. dollar.

The benchmark Korea Composite Stock Price 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, Reuters reported.

"It’s a relief that the situation didn’t last long, but had it been prolonged, we feared being isolated in Korea, which could have severely affected ongoing client relationships and exports to other countries," said an executive of a foreign firm in Seoul.

In response, South Korea’s financial regulator said on Wednesday that it was ready to deploy 10 trillion won ($7.07 billion) in a stock market stabilization fund any time, according to the Yonhap News Agency.

The Bank of Korea said it plans to increase short-term liquidity and take "active" steps to ensure stability in currency markets.

Companies were also concerned about their employees’ safety. Colleagues at the headquarters reportedly contacted their local executives several times during the early hours to ensure they were safe.

Some employees were asked to work from home Wednesday until further notice amid political uncertainties.

"I received a group text from my company around 12.30 a.m., instructing all office staff to switch to remote work immediately," an employee said.

An executive of a foreign airline expects domestic airlines like Korean Air might experience confusion during in the short run.

"We weren’t entirely unprepared for the possibility of disruptions to civilian passenger and cargo flights, particularly given that Korea remains technically under an armistice," the Korean Herald quoted the executive as saying.

Some analysts, however, are optimistic that the political issues will not have major impact on the economy.

"Korean authorities appear to be moving quickly to stabilize markets, and the impact is likely to be short-lived," said Charu Chanana, chief investment strategist at Saxo, as cited by Reuters.

The plunge of South Korean stocks, however, has created a ripple effect in the rest of Asia, sending the MSCI Asia Pacific Index down 0.5%. Shares also closed lower in Australia, Japan and mainland China.

"The situation remains dynamic and evolving and markets could continue to experience volatility as the existing cabinet is likely to be reshuffled and a possible impeachment process could be evaluated," said David Chao, global market strategist at Invesco in Singapore, as cited by Bloomberg.