President Yoon Suk-yeol's declaration of a state of emergency is shaking the domestic financial market, affecting the exchange rate, stocks, and securities alike. The exchange rate of the won against the U.S. dollar, which fluctuated in the 1400 won range, soared to 1430 won, while the KOSPI index retreated to the 2300-point range.
On the 16th, Lee Jae-man, a Research Institute member at Hana Securities, noted, “As the impeachment motion against President Yoon has passed in the National Assembly, his suspension from duties has become inevitable.” However, he added, “If the process of responding to public opinion progresses, the increase in the (won-dollar) exchange rate due to political uncertainty is likely to be partially reversed.”
The Research Institute predicts that the won-dollar exchange rate will fluctuate between 1400 won and 1430 won until the end of the year. In fact, during March 2017 when former President Park Geun-hye was dismissed, the exchange rate fell by 0.7 won from the previous day, showing limited impact.
However, the Research Institute stated, “Even if the exchange rate stabilizes in the low 1400 won range, the continuation of U.S. exceptionalism and trade disputes during a potential second term for Trump could induce a strong dollar.” They added, “The won-dollar exchange rate is likely to maintain the 1400 won range until the first half of next year.”
The Research Institute anticipates that the KOSPI index will recover to its early-year level of around 2600 points. He explained, “Excluding policy shifts related to the global financial crisis, fiscal crises in advanced countries, the COVID-19 pandemic, and interest rate hikes by the Federal Reserve, the Morgan Stanley Capital International (MSCI) dollar-converted Korea index has fallen between 13% and 27% from its peak.”
Due to additional price adjustments observed during this impeachment process, the MSCI dollar-converted Korea index has retreated 26% from its annual peak. The Research Institute stated, “Considering this, there is still potential for further rebounds in the domestic stock market following the conclusion of the impeachment.”
He continued, “Considering that expectations for a Federal Reserve interest rate cut on the 18th remain valid, it is expected that the domestic stock market will rebound, focusing on sectors that are expected to see profit increases in 2025, despite significant declines throughout the year.” The sectors he identified include semiconductors, banking, software, IT hardware, and defense.
Regarding securities, he forecasted, “As observed in past cases, interest rates are expected to rebound after testing the lows, with significant weakness anticipated primarily in long-term bonds.” The Research Institute noted, “There is a need to respond to the curve steepening (long-term bond rate increase) from year-end to early next year,” adding that “it is also necessary to consider the recent 25 basis points increase in the 10-year U.S. Treasury yield over the past week ahead of the December Federal Open Market Committee (FOMC) meeting.”
He also added, “Short-term bonds are expected to fluctuate for the time being, given that expectations of an interest rate cut from the January Monetary Policy Meeting remain.”