Asia Day Ahead: South Korea’s political drama. What’s next?

Asia Open

The Asian session is off to a weak start, with the Nikkei +0.26%, ASX -0.42% and the KOSPI -1.13% at the time of writing. Risk sentiments will digest the overnight shocker from South Korean President Yoon Suk Yeol, who briefly declared martial law, only to lift it hours later. The National Assembly has quickly moved to block the decree overnight, while South Korea’s finance ministry said that it is ready to deploy “unlimited” liquidity into financial markets if needed.

While the last-ditch move may be the South Korea President’s way of a standoff over the 2025 budget cuts, the political drama has been short-lived and the timing of it to be during off-working hours may be a bid to reduce disruptions to economic activities. Overall, it seems like a political protest, rather than an actual threat of “pro-North Korean anti-state forces”, as he laid out.

South Korea’s political drama. What’s next?

Overnight, US-listed companies with exposure to South Korea’s suppliers eg. Samsung Electronics, SK Hynix, LG Electronics have not seen much of a panic sell, with NVIDIA and Apple up 1.2% in the green, while Microsoft and Google turned in flat. The jitters seem mostly contained within the South Korea’s equities space, with the South Korea’s KOSPI unwinding an earlier attempt to recover this morning. Risk-taking may likely remain capped for now as near-term uncertainty over Yoon Suk Yeol’s leadership persists.

Ahead, there is the possibility that we may see him being impeached further down the road, while the opposition has called on him to resign. Markets will prefer a quick resolution to the stand-off and for political stability to return, but for now, it seems that the uncertainty over his leadership may continue to drag on for some time. Nevertheless, with his low public rating and inability for any policy pass-through, we may see some calm gradually return if more clarity were to be presented. Of course, this is dependent on whether there will be any peaceful stand-down, or the worst case for markets will be any further escalation which may amplify the hit to economic sentiments.

For now, the knock-on impact on neighbouring markets has been more limited, with other regional markets taking a slight dip into the red that surely pales in comparison to KOSPI’s close to 2% loss, while US equity futures are pointing to the green.

Economic calendar ahead

The economic calendar overnight did not offer much of a move across markets. We have a stronger-than-expected JOLTS report out of the US, which did little in swaying expectations around a December rate cut from the Federal Reserve (Fed). Yields firmed up slightly, while the US dollar consolidates. The day ahead will leave US Institute for Supply Management (ISM) services Purchasing Managers' Index (PMI) data on watch, alongside the Automatic Data Processing (ADP) private payrolls data to further validate the strength of the US economy.

Technical analysis: USD/KRW finding resistance from upper channel trendline

The USD/KRW has managed to retest its 2022 high at one point, before paring some of its gains as the martial law in South Korea came short-lived. Having traded within a broad rising channel since 2023, the pair is brought back below its upper channel trendline, which leaves one to watch the channel resistance at the 1,430 level ahead.

Overall, the upward trend may likely persist, with its daily relative strength index (RSI) recently bouncing off its key 50 mid-line. Given that the political uncertainty may drag on for some time, we still look for a move for the pair to retest the channel resistance over the coming days, coupled with stronger US economic data, which is likely to give strength to the US dollar on a less dovish Fed rate outlook. Any dip towards the 1,389 level may potentially offer a near-term buying opportunity.