The South Korean market has been heavily influenced by political turmoil in terms of investment behavior among local investors. Considering the turbulence of the local stock market, many are looking at alternative asset classes like cryptocurrency and U.S. stocks. The trend thus points to an increasing loss of confidence in local equities as the nation is experiencing political instability.
Rising Cryptocurrency Trading Volume
Cryptocurrency trade has skyrocketed during South Korea’s politico-crisis, with high trading volumes on major exchanges overpowering those of traditional stock. According to the report by Korea Herald, cumulative 24-hour trading in South Korea’s top five cryptocurrency exchanges, Upbit, Bithumb, Coinone, Korbit, and Gopax, touched a record $14.59 billion last Friday. In other words, 20.72 trillion Korean won was almost twice the Kospi traded during the same day, at 10.48 trillion Korean won.
Most action was recorded at Upbit at $11.34 billion in 24-hour turnover. Bithumb settled for $3.63 billion, with Coinone and Korbit recording just $317 million and $102 million. Gopax, meanwhile, turned in a 24-hour trading volume of $1.34 million, according to an analytics firm known as Messari.
The appeal of cryptocurrency as an alternative investment is pretty obvious since it offers refuge from the volatile nature of the traditional market. However, such activity reflects the appeal of digital assets and a deeper distrust of South Korea’s economic and political stability.
Increased Investment in U.S. Stocks
Investors from South Korea are increasingly looking abroad, to the U.S. stock market, to invest. According to a report by the Korea Securities Depository, local investors traded $63.49 billion worth of U.S. shares over the past month. It is interesting to note that among these, Tesla is the most preferred. Transaction volumes reached $7.7 billion, as South Korean retail investors held Tesla in high esteem.
This is against the backdrop of a plunging Kospi Index falling below the 2,400 mark and closing at 2,360.58 on Monday. The KOSDAQ Index fell by an alarming 5% intraday, while losses in the Kospi Index expanded to 2.6%. Sharp declines like these have painted a rather grim picture of the struggles of the domestic market and further fueled the exodus of capital to international markets.
Market analysts indicate this shift is mainly due to the fact that the political crisis seems to have escalated since President Yoon Suk Yeol declared martial law. Anti-corruption measures followed, and the president was banned from travelling.
Economic Impacts and Currency Volatility
The political crisis has affected the stock and crypto markets and the currency. The Korean won plummeted to 1,437 against the U.S. dollar during intraday trading and failed to recover by the end of the day. Analysts predict that the exchange rate volatility will continue, with the won expected to fluctuate around the 1,400 range as political uncertainty continues.
Korean investors bought US shares worth $1.3 billion on Thursday, 6.4% below the previous day’s level. On Friday, purchases slid to $1.12 billion, a decline of 14%. Sales also tumbled 10% Thursday and 21.3% on Friday,” according to local reports. It shows how investors are careful not to commit to high volumes while the crisis continues.
Lee Jae-man, analyst at Hana Securities, commented: “The won-dollar exchange rate will fluctuate in the 1,400 won range, as the political chaos will continue due to the probable impeachment discussions of Yoon Suk Yeol.
The uncertainty around South Korea’s future politically compels investors to diversify their portfolios, heavily relying on overseas markets and cryptocurrencies. This trend will continue as long as the unresolved crisis remodeling the country’s investment landscape.
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