Korea crisis eases: swift action restores market confidence

South Korea’s brief move to martial law this week unsettled markets, but swift action to restore democracy and reassure investors has minimized the fallout.

The country’s five-year credit default swap fell on Thursday, remaining well below yearly highs. The Kospi index’s selloff slowed, and the won regained most of its losses after President Yoon Suk Yeol declared and quickly rescinded martial law.

Market recovery was bolstered by the short duration of martial law—just six hours—and prompt measures from the Bank of Korea to stabilize liquidity. The central bank offered “unlimited liquidity” and expanded repo operations to calm investors.

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“This rapid response highlights South Korea’s institutional strength,” said Sheldon Chan of T. Rowe Price, calling it a “silver lining” that underscores the country’s political maturity.

S&P Global affirmed South Korea’s AA credit rating, citing the swift return to stability. “The limited turmoil and functioning checks and balances have helped preserve investor confidence,” analysts noted.

Despite this resilience, challenges remain. Political instability adds to concerns over slowing growth and trade risks. Moody’s analyst Anushka Shah warned that prolonged volatility could impact broader economic stability.

As of Thursday, the Kospi fell 0.5%, while the won slipped 0.17%.