Exchange Rate Once Hit 1486 Won, KOSPI Falls Below 2400... Frozen Investment Sentiment

On the afternoon of the 27th, the monitor at Kookmin Bank's smart dealing room in Yeouido, Seoul, displays the trading price of the USD/KRW exchange rate being traded that day. Photo by Choi Hyuk

The impeachment issue of Acting President Han Duck-soo has dealt a significant shock to the financial and foreign exchange markets. The USD/KRW exchange rate once soared above 1480 won, and the KOSPI index fell below the 2400 mark during the session.

On the 27th, the USD/KRW exchange rate in the Seoul foreign exchange market (as of 3:30 PM) ended the weekly trading at 1467.50 won, up 2.70 won from the previous day. The exchange rate fluctuated by more than 20 won that day. Concerns grew that political uncertainty would expand due to Han's impeachment, causing the exchange rate to soar to 1486.70 won around 11:30 AM before quickly turning downward around lunchtime. Analysts suggest this was due to the release of volumes presumed to be micro-adjustments by the foreign exchange authorities. With foreign exchange trading volume at 4 to 5 billion dollars, about half of the usual level due to the year-end holiday season, the micro-adjustment effect by the authorities was significant.

However, after the weekly trading closed, as the impeachment process for Han began, the exchange rate rose sharply again to the high 1470s. Jeon Kyoo-yeon, a researcher at Hana Securities, said, "It's difficult for the won to turn strong on its own," adding, "The authorities' market stabilization measures have limitations in changing the trend."

On this day, the KOSPI index closed at 2404.77, down 1.02% from the previous trading day. Around 11 AM, when the exchange rate soared, it fell to 2391, breaking the 2400 mark again in seven days.

Frozen Investment Sentiment... KOSPI Trading Volume Hits Record Lows Daily

6.1941 trillion... Funds Dry Up, KOSPI Market Cap and Foreign Share Drop

As political instability intensifies, investment sentiment in the domestic stock market is freezing. The KOSPI index is threatened at the psychological barrier of 2400, and trading volume is hitting yearly lows daily.

According to the Korea Exchange on the 27th, both the KOSPI and KOSDAQ indices continued to decline, falling more than 1%. While major Asian stock markets such as Japan's Nikkei 225, Taiwan's Weighted Index, and China's Shanghai Composite Index rose, only Korea went against the trend. The Nikkei 225 rose 1.8%, and the Weighted Index rose 0.12% that day.

The trading volume in the securities market was 6.1941 trillion won, the lowest this year. It broke the record for the lowest trading volume for the third consecutive trading day, following 6.7408 trillion won on the 24th and 6.4104 trillion won the previous day. With funds not circulating in the stock market, both foreigners (-172.5 billion won) and institutions (-115.9 billion won) engaged in net selling. Only 115 stocks rose among the listed companies in the securities market that day, while 808 stocks fell.

The total market capitalization of the securities market was 1966.9567 trillion won as of the closing price, the second lowest this year since the first impeachment proposal for President Yoon Suk-yeol was rejected on the 9th. Compared to January 17th this year, when the market cap was similar, the recent daily trading volume is about half. The foreign share of the market cap continued at its lowest level this year at 32.19% on the 26th.

Amid growing domestic and international uncertainties, political turmoil has further dampened investment sentiment. Around 11:10 AM, when the USD/KRW exchange rate peaked, the KOSPI index fell to 2391, surrendering the 2400 mark for the first time in seven days since the 20th. Lee Kyung-min, a researcher at Daishin Securities, said, "Domestic political risks are amplifying the pressure on the won to weaken and encouraging foreign selling."

The fact that only the Korean stock market fell among major Asian markets that day also indicates weak investment sentiment. A representative of an asset management company said, "The impeachment situation is weighing heavily on the already struggling domestic stock market."

Reporters Kang Jin-kyu and Park Han-shin josep@hankyung.com