• Unexpected political turmoil:  the declaration of martial law by South Korea’s president came as a surprise to global markets. The move, as described by President Yoon, was aimed at clearing out pro-North Korea supporters and saving his government against multiple impeachments against his cabinet officials. However, this emergence restriction did not last for long after the Parliament voted against the decision, forcing Yoon to withdraw the martial law. Normality has since returned, but the cloud of political uncertainty has not fully dissipated.
• Markets taking it in its stride: The negative knee-jerk reaction was moderated by the short-lived curfew and central bank pledging to keep liquidity abundant. The equity market pared opening losses,  while the Korean won has managed to recoup most of the lost ground. Bond markets were little changed, with Korea’s sovereign CDS a touch higher, but remaining low in absolute terms.
• Rising political uncertainty warrants caution:  The quick resolution to the current crisis does not mean political stability is fully restored. The process of impeachment and the transition to the next government all point to heightened political uncertainty in the coming weeks and months. This is happening at a time when the Korean economy is already weakening, with tariff risks still looming large. While we remain long-term positive on Korean assets, recent developments warrant some short-term caution.

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