Korean Won Bounces Back, ETFs Rebound as South Korea’s Yoon Ends Martial Law Amid Political Uproar

The Korean won rebounded from a two-year low on Tuesday after President Yoon Suk Yeol lifted martial law, following unanimous opposition in South Korea’s parliament. The policy reversal helped ETFs linked to the country’s equities recover some ground.

Martial Law Reversal Boosts Korean Won and ETFs

Following President Yoon Suk Yeol's announcement that he would be lifting the martial law he had declared just hours earlier, the South Korean won recovered from a two-year low against the dollar on Tuesday, and exchange traded funds associated with South Korean stocks also reduced losses, Reuters reports.

190 legislators in parliament voted down Yoon's proclamation of martial law, with members of his own party pleading with him to revoke it. Martial law must be quickly lifted by the president under South Korean legislation if it is demanded by parliament by a majority vote.

Korean Won Hits Two-Year Low Amid Political Turmoil
The South Korean won hit a new low of 1,443.40 won/dollar on Yoon's declaration of martial law, the lowest level since October 2022. At 1,418.18, it was last trading over 1% lower.

"It's a very confusing situation," remarked Marc Chandler, chief market strategist at Bannockburn Forex in New York. Finally, he pointed out that South Korean news is mostly regional and so unimportant.

Limited Exposure to Korean Won Highlights Trade Realities

"Our corporate clients do not have Korean won exposure for a couple of reasons. One, the Korean won is a restricted currency. And second, most of the trade between the U.S. and South Korea is conducted in U.S. dollars."

According to Yoon, the opposition parties have hijacked the legislative process and plunged the nation into chaos, therefore he had to take this drastic step to protect free and constitutional order.

ETFs Trim Losses Despite Lingering Currency Weakness

Earlier, stocks listed overseas plummeted, although they have now recovered part of their losses. Franklin FTSE South Korea ETF was down 1.1%, and MSCI South Korea ETF was down 0.9%, both off their lows, at 1,417.07 won.

According to Investment.com, the won has lost over 9 percent of its value this year, making it one of the worst-performing Asian currencies. The market has been under constant pressure due to the Bank of Korea's aggressive rate cuts meant to stimulate the economy and investors' reluctance to put money into a country they perceive as highly vulnerable to exports and U.S. trade tariffs on China.

Trade Tariffs and Economic Pressures Weigh on Korean Won

"The Korean won is already under pressure from the looming threat of tariffs and their detrimental impact on export-driven economies," said Rong Ren Goh, a portfolio manager in the fixed income team at Eastspring Investments in Singapore.

"This latest development is likely to exacerbate the currency’s weakness, encouraging speculators to use the won as a high-beta proxy for expressing tariff-related risks."