Korea's Political Chaos Adds Another Blow to Beleaguered Samsung

The political chaos in South Korea has deepened today, putting the country’s stock market on course to produce Asia’s worst showing for 2024, at least outside fringe frontier markets.

In Seoul, the National Assembly voted today to impeach the acting president, Han Duck-soo, who had taken over from President Yoon Suk-yeol, who was himself impeached after attempting to impose martial law.

Even the debut of the second season for the smash TV show Squid Game wasn’t enough to rouse any animal spirits. In fact, mixed reviews sent the shares of affiliated media companies south.

The Kospi closed today down 1.0% to bring its year-to-date decline to 9.9%. A major culprit has been the selloff in memory-chip maker Samsung Electronics KR:005930, which is down 32.5% to date in 2024, the chaebol conglomerate’s worst showing in two decades.

South Korea is posting the worst showing among major markets in Asia for this year, although the stock markets in Thailand (down 1.0% for 2024 as of Friday) and Indonesia (down 3.3% as of Friday) are both also in the red for the year.

Korean shares took the early August glancing blow to Nasdaq on the chin. At the time, investors were concerned about U.S. recession worries. But it was enough to send Samsung down 10.3% on Aug. 5 alone, with rival SK Hynix off 9.9%. The Kospi, ending that day down 8.8%, suffered its heaviest selling since the start of the financial crisis in 2008.

While Nasdaq quickly reclaimed its lost ground, and is currently up 39.1% for the year, Korean stocks have suffered a series of disastrous selloffs. They will be ending 2024 at similar levels to where they entered 2023.

The markets have punished Samsung for the conglomerate’s slow progress in making the high-bandwidth memory chips necessary to power artificial intelligence. Hynix, by contrast, has still climbed 22.5% higher in 2024, selling its higher-end server chips to customers such as Nvidia NVDA. Samsung is also suffering through a glut in supply for its specialty, DRAM memory chips.

In addition, investors are concerned about Samsung’s relatively high exposure to customers in China, at a time tariffs and trade disruption are likely to rise. It is foreign investors that have done the bulk of the selling out of Samsung positions, accounting for some 96% of Samsung’s trading volume in 2024.

The Korean won is also a concern for investors into Seoul. The won has weakened 13.8% against the U.S. dollar this year, softness that essentially has all come in the fourth quarter, mimicking Samsung’s selloff.

The fringe market of Bangladesh is the only Asian market to outdo Seoul on the downside. In the Bangladeshi capital, the Dhaka Stock Exchange Broad Index is down 17.0% year to date as of today. Investors have seen stocks tumble to levels not seen since the rebound from Covid-19, demonstrating a loss of faith in the frontier market after the ousting of dictatorial former prime minister Sheikh Hasina.

The political chaos in Seoul is also hurting the market. The National Assembly decoded unanimously, in a 192-0 vote, on Friday to impeach Han. It’s the first time an acting president has ever been impeached.

The ruling People Power Party is protesting the decision to use a simple majority of the 300 seats as the yardstick for a successful impeachment. That applies to ministers, but removing a president normally requires a two-thirds majority. The opposition Democratic Party and its allies have a parliamentary majority of 192 seats but required 8 of the ruling party’s members to side with them to clear the 200-vote bar for Yoon to be impeached.

The Democratic Party cited Han’s refusal to appoint additional justices to the constitutional court that will investigate his predecessor’s impeachment trial, as well as Han’s involvement in the declaration of martial law and refusal to continue the corruption investigations into Yoon and his wife. Han took over after Yoon’s presidency was suspended when he was impeached on Dec. 14.

The constitutional court today began preparatory hearings in Yoon’s impeachment. Yoon declared martial law late at night on Dec. 3, only to rescind it less than six hours later, as I explained at the time. It brought to mind the military dictatorships that governed Korea after the Korean War came to a close in 1953. But the declaration was a shock to younger Koreans who have grown used to democracy since the first democratically elected leader took power in 1988.

The opposition may now be grasping for its own seizure of power. Finance minister Choi Sang-mok, the third in line to the presidency, is now acting in that position. But if Choi and four more cabinet ministers are also impeached, the cabinet will no longer have the necessary 11 minister minimum to hold an official meeting. That would mean any bills passed by the National Assembly would automatically become law.

Who will be the last politician standing? Perhaps the second season of Squid Game is releasing at an appropriate time.

The second season is getting decent reviews. But associated stocks are suffering. Movie distributor Artist United KQ:321820 saw its shares plunge the daily limit of 30% on Friday. Its largest shareholder is the Squid Game star Lee Jung-jae. Content house Dexter Studios KQ:206560, a production partner of Netflix NFLX, saw its shares sink 24.1%. Both Artist United and Dexter are listed on Kosdaq, a smaller tech-focused exchange that styles itself after Nasdaq.

At its core, the story of Squid Game – much like 2020 Best Picture winner Parasite – seeks to skewer the worst of the inequalities in Korean society. The invitations in the original 2020 Squid Game went out to vulnerable individuals, often suffering under huge debt burdens, who would prove willing to play deadly versions of children’s games, given a large enough financial incentive. It’s hyper-capitalism, and a winner-take-all contest where even the winners, scaling to the top of a pile of bodies, lose.

At the time of publication, Alex Frew McMillan had a long position in Nvidia.