Won stabilizes after martial law, Asian markets mixed
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Asian markets showed a mixed performance on Wednesday as South Korea's won staged a recovery following the turmoil caused by President Yoon Suk Yeol's brief declaration of martial law. While South Korea's Kospi index remained under pressure, regional equities edged higher amid cautious optimism.
South Korean Won and Kospi React to Political and Economic Turmoil
The South Korean won rebounded strongly from a two-year low, gaining 1% by midday, supported by suspected central bank intervention and the finance ministry's pledge of "unlimited" liquidity support. This recovery follows a tumultuous overnight session during which the won dropped as much as 2%, its steepest single-day decline since 2016.
Despite the currency's stabilization, the Kospi index fell 2.3%, reflecting investor anxiety over political uncertainty and weak macroeconomic indicators. South Korea faces headwinds from a prolonged export slump, falling U.S. demand, and fears of heightened U.S. tariffs. An unexpected interest rate cut by the Bank of Korea further compounded investor concerns.
Citi analysts noted that outflow pressures could increase, posing upside risks to USD/KRW. They anticipate fiscal policy measures to stabilize markets once the current turmoil subsides.
Regional Market Performance
Across Asia, market performance varied:
Indian Rupee (USDINR): The rupee remained largely steady after consecutive all-time lows, pressured by slowing economic growth and foreign investment outflows.
Chinese Yuan (USDCNY): The yuan added 0.3%, though it continues to face depreciation risks from U.S. tariff threats and a growing monetary policy gap between the U.S. and China.
Indonesian Composite Index: Gained 1.6%, marking a rare bright spot, though the index lags peers with a 0.5% year-to-date increase.
Taiwan's TAIEX: Jumped nearly 1%, supported by tech-sector momentum.
Singapore (STI) and Malaysia (.KSLE): Edged higher by 0.5% and 0.4%, respectively.
Thailand's SET Index: Declined by 0.2%, bucking the regional trend.
Global and Regional Drivers
The U.S. dollar index (DXY) reversed early gains to trade down 0.1%, as markets weighed the likelihood of a Federal Reserve rate cut this month. Weak U.S. demand, paired with South Korea's economic challenges, underscored the region's vulnerability to global trade tensions.
China's services activity showed slower expansion in November, with the Caixin Services PMI easing to 51.5. This dampened optimism for a robust recovery in the world’s second-largest economy.
Upcoming Key Data
Investors are now turning their attention to inflation data from the Philippines and Taiwan, as well as South Korea’s updated growth figures, expected later this week. These reports will provide further insights into regional economic health and market direction.
Outlook
The South Korean won’s recovery and the Kospi’s sharp decline underscore the fragility of investor sentiment in the face of political and economic uncertainty. Broader Asian markets may continue to see uneven performance, driven by global macroeconomic trends, U.S. monetary policy expectations, and ongoing geopolitical risks.
South Korean Won and Kospi React to Political and Economic Turmoil
The South Korean won rebounded strongly from a two-year low, gaining 1% by midday, supported by suspected central bank intervention and the finance ministry's pledge of "unlimited" liquidity support. This recovery follows a tumultuous overnight session during which the won dropped as much as 2%, its steepest single-day decline since 2016.
Despite the currency's stabilization, the Kospi index fell 2.3%, reflecting investor anxiety over political uncertainty and weak macroeconomic indicators. South Korea faces headwinds from a prolonged export slump, falling U.S. demand, and fears of heightened U.S. tariffs. An unexpected interest rate cut by the Bank of Korea further compounded investor concerns.
Citi analysts noted that outflow pressures could increase, posing upside risks to USD/KRW. They anticipate fiscal policy measures to stabilize markets once the current turmoil subsides.
Regional Market Performance
Across Asia, market performance varied:
Indian Rupee (USDINR): The rupee remained largely steady after consecutive all-time lows, pressured by slowing economic growth and foreign investment outflows.
Chinese Yuan (USDCNY): The yuan added 0.3%, though it continues to face depreciation risks from U.S. tariff threats and a growing monetary policy gap between the U.S. and China.
Indonesian Composite Index: Gained 1.6%, marking a rare bright spot, though the index lags peers with a 0.5% year-to-date increase.
Taiwan's TAIEX: Jumped nearly 1%, supported by tech-sector momentum.
Singapore (STI) and Malaysia (.KSLE): Edged higher by 0.5% and 0.4%, respectively.
Thailand's SET Index: Declined by 0.2%, bucking the regional trend.
Global and Regional Drivers
The U.S. dollar index (DXY) reversed early gains to trade down 0.1%, as markets weighed the likelihood of a Federal Reserve rate cut this month. Weak U.S. demand, paired with South Korea's economic challenges, underscored the region's vulnerability to global trade tensions.
China's services activity showed slower expansion in November, with the Caixin Services PMI easing to 51.5. This dampened optimism for a robust recovery in the world’s second-largest economy.
Upcoming Key Data
Investors are now turning their attention to inflation data from the Philippines and Taiwan, as well as South Korea’s updated growth figures, expected later this week. These reports will provide further insights into regional economic health and market direction.
Outlook
The South Korean won’s recovery and the Kospi’s sharp decline underscore the fragility of investor sentiment in the face of political and economic uncertainty. Broader Asian markets may continue to see uneven performance, driven by global macroeconomic trends, U.S. monetary policy expectations, and ongoing geopolitical risks.