"Martial Law Situation... Already Bad Uncertainty in South Korean Economy Grows"

Global IB Industry, Downgrades Investment Opinions and Forecasts for South Korean Stocks

Goldman Sachs "Difficult for South Korean Economy to Improve in the Short Term"

Global investment banks (IB) have analyzed that the South Korean economy is facing additional risks of political uncertainty due to the martial law situation, on top of already gloomy prospects from the inauguration of Trump's second administration and a slowdown in exports.

Within the global IB industry, investment opinions and growth forecasts for South Korean stocks next year have been downgraded, and some IBs have even suggested advancing the timing of selling South Korean stocks.

According to the financial investment industry on the 7th, Goldman Sachs stated in a report published on the 5th that "the slowdown in exports and the decline in DRAM prices may continue the downward cycle of South Korean corporate performance," and "in a situation where economic policy uncertainty has increased, fundamentals are unlikely to improve in the short term."

Goldman Sachs explained that "by 2025, the South Korean economy is more exposed to headwinds such as a strong dollar, high long-term interest rates, and tariff uncertainties compared to other regions, making the macroeconomic environment seem more challenging," predicting a slowdown in growth.

In particular, regarding the stock market, it forecasted that "although overall valuation has fallen to an attractive level, it will maintain a low level unless there is a clear trigger for revaluation."

Goldman Sachs predicted that "in addition to the impact of prolonged high interest rates and economic cycles, the shock of economic policy uncertainty has led to a valuation derating in South Korea," and "considering the downside risks to South Korean corporate performance and domestic and international policy uncertainties, volatility is expected to continue in the short term."

Morgan Stanley stated that "(despite the martial law situation) the basic outlook for weak exports and delayed recovery in consumption remains unchanged." They have downgraded next year's GDP growth forecast for South Korea from 2.0% to 1.7%, and lowered the investment opinion on the South Korean stock market from 'neutral' to 'underweight (sell)'.

Morgan Stanley also mentioned that "considering the uncertain policy environment, the possibility of impeachment and a change in presidency could amplify concerns among households and investors about economic prospects, increasing the downside risks to domestic consumption and investment activities."

They also noted that "many investors expressed concerns about South Korean stocks if political instability persists." However, they predicted that the short-term impact on the economy would not be significant.

Hong Kong-based CLSA analyzed the situation by stating that "even if the martial law issue is resolved, it adds unwelcome additional political risks to South Korean stocks, which have shown disappointing movements since July."

They have already suggested significantly reducing exposure to South Korean stocks in next year's outlook, stating "this adjustment is being advanced by a few days."

Barclays also pointed out that "due to strong opposition to the current president, the likelihood of continued political uncertainty is high," and "there is a risk of delay in the approval of next year's budget, and if this delay prolongs, there is potential downside risk to domestic recovery."

Furthermore, they noted that "the Korean won is one of the most vulnerable currencies in Asia to 'Trump tariffs,'" and "political and economic uncertainties could affect the flow of foreign funds into South Korea, consequently putting pressure on the won," predicting that the won's weakness will continue for the time being.

Yoo Ji-hee, Hankyung.com reporter keephee@hankyung.com