South Korea Declares Martial Law Amid Political Turmoil, Sending Stocks Into a Tailspin

In a dramatic escalation of South Korea's political crisis, President Yoon Suk Yeol declared emergency martial law late Tuesday, citing a need to protect the nation from "communist forces." The rare move has sent shockwaves through the country and reverberated across global financial markets.

Market Reaction: A Shock to Stability

The announcement sparked a steep sell-off in U.S. trading of South Korean stocks. The iShares MSCI South Korea ETF, a benchmark tracking over 90 large and mid-cap South Korean companies, plunged 7% to a 52-week low before paring losses to close 2.6% down. Trading volumes surged, with nearly 27 million shares changing hands—eight times the 30-day average.

Key South Korean companies were hit hard:

• Korea Electric Power’s American Depositary Receipts (ADRs) dropped 5%.
• E-commerce giant Coupang shed 6%.
• KT Corporation, a major telecom player, fell 3%.
• Steel manufacturer Posco declined by over 6%.

The Political Flashpoint

The declaration of martial law, South Korea's first since 1980, follows heated parliamentary debates over a budget bill. President Yoon accused opposition lawmakers of sympathizing with North Korea and jeopardizing national security.

Martial law temporarily transfers power to military authorities, restricting political activities and outlawing acts deemed to incite "social disorder." However, Yoon’s move faced immediate backlash. Within three hours, 190 of the 300 lawmakers in South Korea’s National Assembly convened and voted to overturn the decree in a rare show of cross-party unity.

Global Concerns

The crisis has drawn international attention. The White House National Security Council issued a statement noting it is "in contact with the Republic of Korea (ROK) government and closely monitoring the situation."

Economists warn that prolonged instability could dampen investor confidence in South Korea, the world’s 13th largest economy, known for its tech giants, advanced manufacturing, and pivotal role in global supply chains.

Stock Market Uncertainty

The Korea Exchange has announced emergency measures to address market volatility and may delay Wednesday’s trading session. Analysts anticipate further sell-offs if political tensions remain unresolved.

Historical Echoes

The declaration marks a flashback to South Korea’s tumultuous 1980s when martial law was last invoked during a period of authoritarian rule. This move by Yoon, who had previously campaigned on democratic reforms, has raised concerns about the country’s political direction.

Looking Ahead

As lawmakers and President Yoon lock horns over martial law’s legality, South Korea faces a precarious moment in its democratic history. The crisis threatens to undermine global confidence in a nation vital to tech innovation, manufacturing, and geopolitical stability in East Asia.

Investors and global leaders are watching closely, as the outcome of this standoff could reshape South Korea's economic and political landscape for years to come.