It was a turbulent day for the Korean market after President Yun Seok-Yeol unexpectedly declared martial law. The dramatic move, the first in more than 40 years, raised concerns about political instability and caused a sharp decline in South Korean assets.

The iShares MSCI Korea ETF fell 8.7% to USD 52.67, marking its worst intraday performance since August 2023. It has now regained some ground and is trading down 1.8% at USD 55.69.

Meanwhile, Samsung Electronics shares listed in London plunged 7.5%.

South Korean ADRs (American Depositary Receipts, stocks of Korean companies traded on US exchanges) also suffered losses, with Coupang falling 9.8% and Posco Holdings falling 4.3%.

The Korean won plunged 2.9% to 1,444.65 won to the dollar during New York trading hours, hitting its lowest level since 2022.

what happened?

In a televised speech Tuesday night, President Yoon said he would “defend liberal South Korea from the threat of communist forces in North Korea and eliminate anti-national elements who are plundering people’s freedom and happiness.” declared that martial law was necessary.

All major political parties, including President Yoon’s People’s Power Party (PPP), opposed the move.

Mr. Yoon and his government have faced low approval ratings and multiple corruption allegations, and have struggled to pass legislation in the National Assembly, where the opposition Democratic Party holds a majority of seats.

The Democratic Progressive Party cut approximately 4.1 trillion won from the 677 trillion won budget proposal proposed by Yoon, as well as the government’s reserve funds and the operating budgets of Yoon’s office, the prosecutor’s office, the police, and the National Board of Audit.

Following martial law, the Diet was put on lockdown, and the military entered the building and attempted to break into the main hall where voting was to be held. Party officials used fire extinguishers to prevent entry. Hundreds of protesters gathered outside.

A few hours later, the National Assembly held an emergency session to lift the declaration, with 190 out of 300 members (18 PPP members and 172 opposition members) in attendance, some of whom climbed the fence and entered the building. It was passed unanimously. National Assembly Speaker Woo Won-sik declared that members of the National Assembly will “protect democracy together with the people.”

Afterwards, President Yun announced that martial law would be lifted after a cabinet meeting.

market reaction

The sell-off eased slightly after the parliamentary vote and authorities promised “unlimited liquidity” to stabilize markets.

Although the won pared some of its losses and was trading at 1,421.85 yen to the dollar by midday in New York, it fell more than 9% and remains one of Asia’s worst performing currencies this year.

The Korea Exchange announced it would review its trading protocols on Wednesday amid continued volatility.

The disruption comes as South Korea grapples with broader economic challenges, including slowing export growth and last week’s surprise interest rate cut. The Bank of Korea’s dovish stance has added to the pressure from global trade tensions and protectionist policies, spurring the won’s depreciation.

“Domestic uncertainty has added to external pressures in recent weeks as markets have begun to price in U.S. tariff increases under the new Trump administration,” said Aroop Chatterjee, a strategist at Wells Fargo.