The KOSPI, the won-dollar exchange rate and the Kosdaq index are displayed on the electronic board in the dealing room of Hana Bank's headquarters in central Seoul, Monday. Yonhap

The Korean stock market is expected to remain weak for the time being as political and economic uncertainty, caused by President Yoon Suk Yeol's abrupt declaration of martial law on Dec. 3, prolongs following the National Assembly's failure to impeach Yoon on Saturday.

The opposition-led National Assembly is pushing for another impeachment motion, saying it will do so every week until the motion is approved.

Analysts said on Monday that investor sentiment is extremely weakened amid deepening political chaos, at a time when the Korean stock market has already been in a situation where disappointment accumulated due to being sidelined in the global market. This is making it likely for small variables to cause significant volatility.

Some argue, however, that participating in panic selling holds little merit, given that the domestic stock market has already reached a historical low.

“The likelihood of a worst-case scenario materializing has increased,” Daishin Securities analyst Lee Kyung-min said. “The KOSPI could undershoot to the low-to-mid 2,300 range or even lower. The easing or resolution of domestic political risks will be the key determinant of short-term KOSPI fluctuations.”

Protesters call for President Yoon Suk Yeol's impeachment in front of the National Assembly in Seoul, Sunday. Korea Times photo by Shim Hyun-chul

Currently, there are no significant movements by global credit rating agencies, such as Standard & Poor's, regarding Korea.

Credit rating adjustments typically take more time, so it is necessary to assess the short-term external creditworthiness and safety of the Korean market through two indicators: credit default swap (CDS) premium, a barometer of risk-hedging costs for a country on sovereign or corporate debts, and the spread on foreign currency bonds.

Analysts generally assess that there have been no sharp changes in these two indicators so far.

Kim Dae-jun, an analyst at Korea Investment & Securities, advised, however, “As these two indicators are gradually rising, there is a possibility that stock market volatility could increase, and in the process, the exchange rate may rise again, causing foreign capital to exit, so continuous monitoring is necessary.”

Recalling a similar crisis following the 2016 impeachment of then-President Park Geun-hye, analysts stated that the KOSPI initially fell when the Assembly was pushing to impeach her but began to rebound as the impeachment motion was passed.

They also noted that, given the current active involvement of financial authorities in the capital market, the additional decline is unlikely to be large or prolonged.

“A V-shaped rebound seems difficult, but the decline is likely to be limited as well,” Shinhan Securities analyst Roh Dong-gil said. “The movement of the stock market from now on is more likely to be confined to specific sectors rather than reflected across the entire index.”

Kiwoom Securities analyst Han Ji-young suggested, “In the process of increased market volatility, it is more reasonable to respond by observing the situation or through staggered buying rather than participating in panic selling.”

Daishin Securities' Lee also advised investors with a large stock allocation and limited ability for short-term trading to hold their positions.

“For those able to engage in short-term trading, it would be wise to manage risks if the KOSPI falls below the 2,400 level and gradually increase positions starting from the low 2,300s. If additional buying capacity exists, it is recommended to implement a pyramiding strategy, starting from the 2,400 level and extending down to below 2,300,” Lee said.

In response to growing uncertainty and anxiety, the Korea Exchange (KRX) held an emergency meeting on Monday morning to assess the financial market situation and the outlook for domestic and international stock markets.

The exchange plans to strengthen monitoring of unfair trading practices, including market manipulation, to prevent investor anxiety from being fueled by baseless rumors.

Additionally, as market volatility may increase depending on the results of the U.S. Federal Open Market Committee (FOMC) meeting scheduled for Dec. 18, the KRX plans to maintain close coordination and response systems with relevant agencies, such as the Financial Services Commission, to do its utmost in ensuring market stability.