A screen shows the benchmark KOSPI, the currency rate, and secondary Kosdaq bourse at a dealing room at Hana Bank's headquarters in central Seoul, Wednesday. Yonhap

Financial markets in Korea are reeling from the aftermath of the U.S. presidential election, with the benchmark KOSPI and the Korean won tumbling to their weakest levels in months.

The downturn is closely tied to the Korean economy's heavy reliance on trade, which makes it more susceptible to the "America First" policies of U.S. President-elect Donald Trump, according to experts, Wednesday.

Trump made pledges for higher tariffs, tax cuts, reduced subsidies on foreign investments, and other policies that rattled global markets following his Nov. 5 election win.

“Many of Trump's pledges are aimed at strengthening U.S. national interests at the expense of its economic partners,” said Ha Joon-kyung, an economics professor at Hanyang University. “In the case of Korea, its markets are more adversely affected due to the country's excessively high reliance on trade.”

The KOSPI closed below the 2,500 point level for the second straight day on Wednesday.

After plunging below 2,500 points to finish at 2,482.57, Tuesday, the index lost another 65.49 points, or 2.64 percent, to end at 2,417.08, Wednesday.

The Seoul bourse's loss contrasts not only with the extended bullish run on Wall Street following Trump's presidential comeback, but also with other exchanges in Asia. For instance, China's Shanghai Composite Index has risen by around 1 percent since the U.S. election, as has Japan's Nikkei 225.

Under the circumstances, the professor pointed out that companies like Samsung Electronics, Hyundai Motor, SK hynix, LG Energy Solution, and many other large KOSPI-listed firms are benefiting from exports. Additionally, these companies have made significant investments in the U.S., he added.

Citing Bank of Korea (BOK) data, the professor also pointed out that trade accounted for 90.6 percent of Korea's gross national income (GNI) in the second quarter of 2024.

GNI is a sum of a country's gross domestic product (GDP) and net income from abroad.

Korea had a higher ratio of trade in terms of GNI compared to major economies, with 31.4 percent for the U.S., 38 percent for China, 37.5 percent for Japan, and 66.1 percent for France.

“Given the connection between Seoul's stocks and Korea's trade, it is not surprising that our stock market is more affected by Trump's plans for higher tariffs and lower subsidies on foreign investments,” Ha said.

The Korean won closed above 1,400 against the dollar for the second consecutive day on Wednesday during daytime trading.

The won closed at 1,406.6 won per dollar in the daytime trading market, further weakening from 1,403.5 won the previous day when it ended below the psychological threshold of 1,400 for the first time in more than two years.

The won's depreciation following the U.S. presidential election comes after it was listed as one of the worst-performing currencies against the dollar this year.

“On the domestic front, foreign investors are pulling out of Korean markets in search of greater returns abroad, resulting in the lowered value of the won,” Min Kyung-won, an analyst at Woori Bank, said.

Regarding the Trump pledges, the analyst said the planned tax cut is expected to lead to higher federal debt.

As a countermeasure, the second Trump administration is likely to issue more U.S. government bonds, which would increase interest rates across the overall American bond market, according to market observers.

“It's apparent that foreign investors will opt for a more secure and profitable market in the U.S., which will likely make the Seoul currency exchange more volatile,” he said.

In the meantime, trade industry sources in Korea raised concerns that a weakened Korean currency could impact the country's cooling inflation.

The sources suggested that the weaker value of the won could increase the cost of imports, leading to higher production expenses and, ultimately, push up consumer prices.

Consumer prices in Korea increased 1.3 percent in October compared to a year earlier, remaining below 2 percent for the second consecutive month. Additionally, the October growth in consumer prices was the smallest in nearly four years. However, the import price index reversed two months of declines, rising 2.2 percent in October from the previous month, signaling that the overall inflation rate may sharply rise.