Flash update - South Korea & France - December 2024
Aviva Investors Multi-Asset team
Flash update - Global political developments – December 2024
On Tuesday 3rd December, the South Korean President declared martial law but reversed the decision within hours after the National Assembly voted against it. The following day, French Prime Minister Michel Barnier was ousted in a no-confidence vote. This was the first time the country’s government has collapsed in a no-confidence vote since 1962.
What happened in South Korea?
- South Korean President Yoon Suk Yeol declared martial law, after claiming that he was protecting the country from "North Korea's communist forces", however observers believed he was trying to reclaim power due to internal political difficulties.
- This decision was rapidly reversed, with President Yoon withdrawing the imposition in just six hours. As a consequence, the opposition have begun impeachment proceedings.
- Most risk assets have rebounded since the law was lifted - the Won initially plunged 2.67%, with the Kospi down 2.3% in response to this political shock.
- A brief recovery in both assets was driven by support from the Finance Ministry, which stated it was planning to deploy market stabilising measures. The financial regulator indicated that it has 10 trillion Won ($7.07 billion) available in a stock market stabilisation fund to reduce market volatility.
- However, continued uncertainty since last Tuesday has seen the currency head towards lows last seen in 2009 and the Kospi has fallen by 5.6%.
What happened in France?
- The minority government is currently facing a significant crisis, primarily due to the contentious budget that Prime Minister Barnier pushed through using special powers that bypassed parliamentary approval.
- The austerity budget introduced by the Prime Minister included €60bn worth of spending cuts and tax rises to reduce France's high national debt.
- Both sides of the opposition were incensed by Barnier's actions and called for a no confidence vote, marking the first collapse of a French government through a no-confidence vote since 1962.
- From a market standpoint, Franco-German 10yr spreads reached their widest level since 2012 last week, and the CAC40 continued to underperform European peers.
How are we positioned in our multi-asset portfolios?
- Although there may be short-term shifts and volatility, we strategically invest with a risk-first approach and maintain a globally diversified portfolio.
- From a tactical positioning perspective, we are neutral European and Asia Pacific ex Japan equities. Within our strategic equity exposure, there has been little impact given France and South Korea represent 2.2% and 0.9% respectively within the global equity benchmark.
- Within our underlying building blocks, the reaction has been and is expected to be muted, given that South Korean and French holdings are diversified and are of high quality.
- We will continue to monitor further developments in both cases.
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