Korean funds for sale in Hong Kong and Singapore have not been insulated from recent political events as financial markets verge into bear market territory.
After a shock announcement of martial law was declared by President Yoon Suk Yeol on 3 December, the country plunged into political turmoil.
Although martial law was quickly lifted, Korean stocks and its currency have experienced a bout of heightened volatility on the back of the political uncertainty.
As investors grapple with the impact of the ongoing political battle in Korea, its finance minister said its economic impact has been very limited.
Authorities have also labelled the recent market moves in financial and currency markets as “excessive” given its economic fundamentals.
But recent developments have complicated the outlook, with President Yoon narrowly surviving an impeachment vote. He has also been banned from travelling overseas.
As financial markets wait for a clear path to government stability, Korean-focused funds have borne the brunt of the recent market moves.
In US dollar terms, some funds are down high single-digits in the span of just a week since martial law was briefly declared, according to data from FE fundinfo.
| Fund | Performance YTD (%) | Performance since Dec 3 (%) |
| Barings Korea Trust | -13.48 | -7.94 |
| iShares MSCI South Korea ETF | -18.84 | -5.36 |
| JPMorgan Korea | -15.07 | -4.39 |
| LionGlobal Korea | -13.75 | -4.3 |
| HSBC MSCI Korea Capped UCITS ETF | -19.23 | -3.82 |
| Xtrackers MSCI Korea UCITS ETF | -19.2 | -3.82 |
Despite the recent moves, the Korean stock market was already one of the worst performing equity markets this year before the political upheaval began.
Korean stocks are down some 10% year-to-date after declining almost 20% from its highs in July, nudging closer into bear market territory. Meanwhile the broader MSCI emerging markets index is up 10% year-to-date.
A 30% decline year-to-date in the country’s largest stock, Samsung Electronics, has weighed on the market, as it accounts for roughly quarter of the MSCI Korea Index.
Samsung has been struggling to keep up with its competition in the foundry business against Taiwan Semiconductor Manufacturing Company, as well as in the memory business against Korean rival firm SK Hynix.
The trade-dependent economy has also been held back by weakness in China’s economy and more recently, Donald Trump’s US election win.
South Korean assets are also subject to the so-called “Korea discount” due to its weaknesses in corporate governance and the nation’s continued tensions with nuclear-armed North Korea.
The recent political turmoil may prove to only exacerbate this discount as investors require a larger risk premium to invest in the country’s equity and bond markets.
