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Stability with impeachment ruling may settle foreign investor jitters

Published: 06 Apr. 2025, 20:01

The Kospi, Kosdaq and exchange rates are displayed on the screen at a trading room at the Hana Bank headquarters in central Seoul. [YONHAP]

The golden time begins for the domestic economy's revival.

As the biggest political uncertainty has been resolved with the impeachment of former President Yoon Suk Yeol, expectations are rising that the net selling by foreign investors — a key factor behind last year’s Kospi downturn — may subside.

However, with the United States imposing reciprocal tariffs and China retaliating, effectively launching a global "trade war," the next administration's handling of tariff negotiations and fiscal-monetary policy is expected to play a critical role in determining the market’s ceiling.

According to the Korea Exchange on Sunday, the open interest (OI) for Kospi 200 futures stood at 285,101 contracts on Friday, the day the Constitutional Court upheld Yoon’s impeachment.

This figure remains near the post-martial law average of 292,834 contracts since Dec. 3, 2024, when Yoon declared his emergency martial law. "OI" refers to the total number of outstanding futures contracts that have not been settled — indicating that the market is still in a wait-and-see mode. By investor type, institutional investors were absorbing Kospi 200 futures that foreign investors were offloading.

The Kospi closes at 2465.42 on April 4, the day former President Yoon Suk Yeol was removed from office after a Constitutional Court ruling that came earlier the same day. [NEWS1]

Domestic securities firms believe that the Kospi now has more room to rise. The stabilization of the domestic political landscape is likely to attract foreign capital and strengthen the Korean won.

In addition, expectations are growing for a supplementary budget and interest rate cuts.

“The impeachment ruling has removed a significant portion of political uncertainty. Relief is flowing into the stock and foreign exchange markets, and rapid normalization is expected,” said Lee Kyung-min, a researcher at Daishin Securities. “If the Korean won strengthens, foreign inflows could improve, boosting the Kospi’s rebound momentum and leading to relative strength compared to global markets.”

Historically, the Kospi has tended to rise in the medium term following Constitutional Court impeachment decisions.

50,000 won bank notes are stacked at a Hana Bank branch in central Seoul on Feb. 19. [NEWS1]

According to the Korea Exchange, three months after former President Park Geun-hye’s impeachment was upheld in March 2017, the Kospi climbed 13.6 percent to 2,381.69 from 2,097.35 on the day of the ruling. Six months later, it was up by 11.7 percent.

In 2004, during the impeachment trial of the late President Roh Moo-hyun, the Kospi dropped about 10 percent immediately after the court dismissed the impeachment — in part due to Beijing's tightening policy causing the “China shock.”

However, three months later, the Kospi had recovered to 766.7, nearly back to the March 2004 level of 768.46, and six months later it had rebounded to 876.67 — a 14.1 percent increase.

The key concern is the potential for a U.S. economic downturn and weakened earnings from Korean exporters due to the tariff war.

U.S. President Donald Trump announces reciprocal tariffs as he holds a chart of ″worst offenders,″ placing Korea in seventh, during an event entitled ″Make America Wealthy Again″ in the Rose Garden at the White House in Washington on April 2. [AFP/YONHAP]

Analysts warn that in the short term, market volatility could increase due to tariff-related uncertainties.

“For foreign investor sentiment in the Korean stock market to improve, U.S. recession concerns need to be resolved by April,” said Lee Soo-jung, a researcher at Meritz Securities. “In the meantime, market momentum may slow, and sectors with high exposure to Chinese sales — such as entertainment, gaming, and consumer goods — could dominate trading.”

Nonetheless, Lee said, “Short-term volatility is inevitable, but if concerns over Trump’s tariff policy peak and domestic political risk subside, along with a stronger won and improved foreign inflows, the Kospi has upside potential of 10 to13 percent from current lows.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.

BY LEE BYUNG-JUN [[email protected]]