Martial law fallout shaves $25B off local market cap as won plummets

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Martial law fallout shaves $25B off local market cap as won plummets

Published: 30 Dec. 2024, 16:13 Updated: 30 Dec. 2024, 18:50

JIN EUN-SOO
[email protected]

Audio report: written by reporters, read by AI

An electronic board at Hana Bank's dealing room in Jung District in central Seoul shows Korean won trading at 1,472.50 won per U.S. dollar on Monday morning. [YONHAP]

Korean businesses are reeling from the political turmoil caused by the impeachment crisis that followed President Yoon Suk Yeol's brief declaration of martial law on Dec. 3.

The market capitalization of major domestic companies has plummeted, dragging down corporate valuations, while soaring exchange rates are adding financial burdens to companies reliant on imported materials.

According to an analysis of Korea Exchange data, the combined market cap of the country’s top 20 companies fell by 37.1 trillion won ($25.2 billion) from Dec. 3 to 27, accounting for a 3.5 percent decline in total value.

Market capitalization, derived by multiplying share prices by the number of outstanding shares, is a key indicator of corporate value.

Only a few companies managed to buck the trend, including SK hynix, which climbed 6.99 trillion won with finalized U.S. subsidy contracts, and HD Hyundai Heavy Industries, which rose 6.79 trillion won as it received cooperation requests from the U.S. government, while Kia increased by 1.15 trillion won, Samsung Electronics by 597 billion won and Hyundai Motor by 105 billion won.

The companies experiencing the steepest declines included LG Energy Solution, which slid 11.47 trillion won as it faces setbacks in its battery business, while Korea Zinc dropped 10.66 trillion won as the firm reels from an ongoing management dispute. KB Financial Group lost 6.38 trillion won, Shinhan Financial Group fell 4.05 trillion won and Samsung Biologics slipped 2.35 trillion won.

Escalating political tensions are adding to the pressure.

Doosan Group, for instance, scrapped its planned corporate restructuring. It had been preparing to seek shareholder approval at an extraordinary general meeting on Dec. 10 to separate Doosan Bobcat from Doosan Enerbility and merge it as a subsidiary of Doosan Robotics. However, the share price of Doosan Enerbility fell from 21,000 won to 17,000 won after the declaration of martial law, dropping below the expected stock purchase price, which led the company to ditch the plan after five months of preparations.

The incoming Donald Trump administration in the United States is also expanding potential risks, posing greater uncertainties for domestic companies.

While active negotiations should take place during the transition of power as the Trump administration prepares to take office next month, Korea faces a diplomatic vacuum in trade negotiations.

“President-elect Trump, as a businessman and master negotiator, will likely employ sophisticated strategies to gain the upper hand in intergovernmental negotiations even under stable circumstances. The ability of [Korea's] acting presidency to carry out meaningful trade diplomacy is worrisome," Hur Joon-young, an economics professor at Sogang University, said.

The escalating uncertainties hit the Korean won heavily in the foreign exchange market.

Despite efforts by the authorities such as expanding foreign exchange swaps with the National Pension Service, the won’s decline has failed to reverse. The won’s value against the dollar rose by 4.8 percent from 1,402.9 won on Dec. 3 to 1,470.5 won on Dec. 27. While export companies might benefit from foreign exchange gains, the majority of firms that rely imported raw materials face an increasing financial burden.

The situation is especially painful for large corporations with significant investments in the United States, as a prolonged dollar rally could substantially inflate their investment costs.

For instance, Samsung Electronics, which is building a semiconductor plant in Taylor, Texas, as part of its $37 billion investment plan through 2030, now faces additional costs of 2.5 trillion won due to the exchange rate during the cited period.

SK Group Chairman Chey Tae-won, who also serves as chairman of the Korea Chamber of Commerce and Industry, highlighted the challenges during a meeting with the National Assembly speaker on Dec. 17.

“The greatest fear in the economy is uncertainty. Corporate responses alone cannot adequately address the challenges posed by the new U.S. administration, and we urge the government to pay close attention," he said.

BY CHOI HYUN-JOO, JIN EUN-SOO [[email protected]]