S&P Global Ratings said Wednesday that South Korea’s sovereign credit rating won’t be hurt by the brief imposition of martial law in the country the previous night.
“There is no substantial reason to change Korea’s current rating since the martial law was relieved in a few hours and the country’s economy is fundamentally sound,” Kim Eng Tan, senior director of Asia-Pacific sovereign ratings at S&P, said during a seminar jointly held with NICE Investors Service in Seoul on Wednesday.
In April this year, S&P kept its long-term sovereign credit rating for Korea at AA with a stable outlook, the third-highest rating, unchanged since August 2016. S&P also affirmed the country’s short-term foreign and local currency sovereign credit rating at A-1+.
Sovereign credit ratings are an important tool for investors to assess the risk of investing in a country's bonds and debt.
“The most important thing is that things have stabilized very quickly… This level of stability is what we expect from a country with an AA rating,” said Andy Liu, managing director at S&P.
Although financial experts believe that the political shock won’t directly affect Korea’s sovereign credit rating for the time being, they also warned that long-term ratings and other aspects of the economy could face negative impacts depending on how the turmoil surrounding the embattled president unfolds.
“Martial law itself has been lifted, but this incident creates more uncertainty in the political landscape and the economy,” Kang Min-joo, senior economist at ING Group, said.
As the situation is not escalating, no immediate rating change is expected. “However, the situation is quite fluid, and it is possible that the rating outlook could change,” she said, adding that the opposition parties’ move to impeach President Yoon could create a new scenario.
“In the wake of the last presidential impeachment, consumer and business sentiment took a significant hit and economic activity slowed.”
On Wednesday, Korean bond yields moved higher. The most liquid three-year bond yield rose by 0.6 basis points to 2.591 percent, while the benchmark 10-year yield rose by 2.3 basis points to 2.736 percent.
