The end of South Korean President Park Gyeun-hye’s tenure cannot come fast enough for investors in South Korean assets.
The benchmark KOSPI jumped 1.4 percent yesterday, the most in almost a month, amid speculation Park would be impeached before an announcement after the market closed that she would step down.
The president will leave office in April, Yonhap TV reported, citing ruling Saenuri Party floor leader Chung Jin-suk.
Photo: AFP
Her resignation will pave the way for a presidential election 60 days after she steps down. If parliament were to impeach her, Park would be suspended from power unless the move was rejected by the constitutional court.
“The current government is in a state of vacuum, and investors are anxious about it,” said Heo Pil-seok, the Seoul-based chief executive officer at Midas International Asset Management, which oversees about US$7.2 billion, before the announcement that Park is to step down. “The sooner the new government comes in, the better.”
The won strengthened 0.3 percent to 1,171.22 per US dollar, the biggest gain in Asia after Indonesia’s rupiah, before news of Park’s resignation broke. Credit-default swaps on South Korean debt have been falling since the middle of last month on expectations that the beleaguered president, who became entangled in an influence-peddling scandal, would be forced to step down.
The KOSPI has fallen 2.6 percent this quarter, and the won has weakened 6 percent against the US dollar. The 12-month price-to-earnings ratio for the share gauge has dropped to 10.2 from as high as 11.7 in April.
Equities still have room to rebound because they are cheap, said Chaiwon Lee, chief investment officer at Korea Value Asset Management Co in Seoul.
“Maybe it’s time to buy some large caps with low valuations,” he said. “The rally of the so-called growth stocks — small and mid caps with high valuations — has been gradually fading this year.”
Park’s resignation clears the way for a new government to come in and revive an economy that has struggled to sustain 3 percent growth in recent years after regularly exceeding 4 percent last decade.
The South Korean economy is facing headwinds including the prospect of faster inflation and interest-rate increases in the US, along with concern US president-elect Donald Trump will adopt a protectionist trade policy when he takes office next month.
“Right now, a lot of government work has come to a halt due to the investigation,” said Min Gyeong-won, a currency analyst at NH Futures Co in Seoul.
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