Korea should remain vigilant amid uncertainties after U.S. election

(Reuters/Yonhap)

South Korea’s financial markets have experienced significant turbulence following Donald Trump’s victory in the U.S. presidential election.

While the Kospi index rebounded slightly on Thursday, it plunged 6.49 percent over the past five days. The Korean won has surpassed the psychological threshold of 1,400 won against the U.S. dollar.

In response, the Korean government issued a verbal intervention on Thursday.

Deputy Prime Minister and Finance Minister Choi Sang-mok noted that “strong market-stabilizing measures” would be swiftly implemented in the event of excessive volatility in the financial and currency markets.

The intervention is seen as an appropriate response to growing market concerns. Compared to its neighbors, Korea is more affected by the outcome of the U.S. election.

Japan’s Nikkei 225 Index fell only 3.14 percent and the Taiwan Stock Exchange Capitalization Weighted Stock Index (TAIEX) fell 3.78 percent over the same period.

While some note that Korea’s heavy reliance on exports makes it more vulnerable to potential U.S. tariff hikes, Taiwan faces similar challenges.

Despite Trump’s direct criticism of Taiwan during his campaign for allegedly “taking over the U.S. semiconductor industry,” Taiwan’s stock market decline was smaller than Korea‘s, suggesting that Korean markets are reacting with undue fear.

Looking back to Trump’s first election in November 2016, while the won weakened through December, it began to recover in January, and the Korean stock market eventually posted a substantial gain of over 50 percent during his first term.

It is fairly evident that Trump’s re-election could pose risks for Korea.

The Korea Development Institute (KDI) has warned that if the U.S. imposes higher tariffs starting next year, Korea’s economic growth could fall to the 1 percent range.

However, excessive fear leads nowhere productive.

Now is the time for calm, reasoned judgment and proactive preparation.

The Korean government should develop detailed, tailored plans to respond to various market scenarios to prevent financial instability from spilling over into the real economy.

Efforts must also be made to strengthen the country’s economic fundamentals, with priority given to high-tech sectors such as semiconductors and artificial intelligence.