By Kimberley Kao


South Korean infrastructure stocks crumbled on Wednesday as the political turmoil sparked by the president's short-lived declaration of martial law unnerved markets.

The benchmark Kospi fell as much as 2.3% in early trade, with infrastructure-related stocks leading the losses. Korea Gas tumbled 20%, Kepco Engineering & Construction and Nexteel each lost 15% and 14% respectively.

The drops leave Korea Gas on track for its one of its worst one-day performances on record, while shares of Kepco are on track for their sharpest drop since April 2021.

Samsung Electronics Co., South Korea's largest company and a heavyweight on the benchmark index, lost 3.0% in early trade before paring losses to last sit 1.1% lower.

The unexpected declaration of martial law in South Korea by President Yoon Suk Yeol late Tuesday sent the won and equities lower. Yoon lifted the declaration hours later after lawmakers voted against the measure early Wednesday.

South Korea-related stocks overseas took a hit overnight as the events unfolded. ADRs of South Korean e-commerce company Coupang fell as much as 9.8% before closing 3.7% lower, while those of steel company Posco closed 4.4% lower. U.K.-listed shares of Samsung were 3.7% lower.

Exchange-traded funds tracking South Korean equities like the iShares MSCI South Korea ETF also fell overnight.

The market fallout now appears to have been mostly contained within the local South Korean equities space, and analysts don't expect much more spillover overseas.

IG markets strategist Yeap Jun Rong said in a note that U.S.-listed companies with exposure to South Korean suppliers like Samsung and SK Hynix didn't see much "panic selling," with the jitters mostly contained within South Korean equities.

Lorraine Tan, regional director at Morningstar, doesn't expect the selloff in South Korean companies' American depositary receipts to continue. The chaos caused confusion in markets, Tan said in a note, but the firm retains its fair value estimates for the South Korean companies under its coverage, viewing the situation as a short-term event.

"We think share price weakness is an opportunity to buy selectively" in South Korean equities, Tan said.

Still, uncertainty over the future of Yoon's leadership may drag on for some time, which will likely cap risk-taking sentiment among investors, IG's Yeap said.

But a proactive policy response could mitigate some of the negative market impact, analysts say.

After meeting with the governor of the central bank and other top financial regulators, South Korea's finance minister said Wednesday that all possible measures will be taken to stabilize markets.

The Bank of Korea said in a statement that financial markets have now somewhat stabilized and that it will start to buy extra repurchase agreements to expand short-term liquidity.

The latest developments and the central bank's intervention should help the won recover some ground, DBS Group Research analyst Philip Wee said in a note.

The fractious political environment will likely weigh on growth and foreign equity inflows but the impact on South Korean equities, while negative, should be contained, Wee said.


Write to Kimberley Kao at kimberley.kao@wsj.com


(END) Dow Jones Newswires

12-03-24 2252ET