South Korea's Impeachment: Why Markets Shouldn't Panic (Yet)

In case you haven't noticed, the market has a very hard time incorporating the impeachment of a sitting president. I know many of you are probably astonished at what you may think is the cavalier way the averages plow higher despite the horrific headlines and a level of discord and rancor seemingly rivaled only by the lead up to the Civil War, or the War Between the States, depending upon your geographic orientation back then.
So why doesn't it matter more?
Let's count the ways.
First, impeaching a sitting president isn't as novel as it would seem. South Korea has experienced impeachments before, with the most recent being that of President Park Geun-hye in 2016. I remember that to be a much scarier time than this one because it came not that long after President Roh Moo-hyun was impeached and reinstated, and two, because you could not be sure that the opposition parties who controlled the National Assembly would all, in unison, find the president innocent of crimes that it sure seemed like he had committed.
As it turns out, the opposition parties didn't break ranks and the president was found innocent.
One thing that I find quite helpful in explaining why we could have such a strong rally right into the proceedings is that the impeachment vote requires approval from Korea's Constitutional Court, which has 180 days to make its decision and could reinstate President Yoon Suk Yeol if it decides the impeachment isn't valid. Court approval would trigger a presidential election within 60 days. Given this delay, investors are likely to remain cautious but not panic.

We know it's not a nothing burger, it's an impeachment proceeding for heaven's sake and those don't grow on trees.
But when you compare this to the impeachments of President Roh Moo-hyun in 2004 and President Park Geun-hye in 2016, this seems tame when it comes to drama, lame when it comes to outcome. The crimes President Roh and President Park were charged with were obvious and criminal. President Roh was accused of "abusing his power and violating the constitution," while President Park was charged with "abusing her power, accepting bribes, and leaking confidential information." There were plenty of lawmakers from both ruling and opposition parties who blasted the presidents and voted to impeach them. There were some scary headcounts. According to the Associated Press and Reuters, at one point the National Assembly had enough votes to impeach President Park, and there were thought to be as many as a dozen senators who could vote to convict. In other words, some of the proceedings were political but there were plenty of lawmakers who were appalled by the presidents' behavior.
That's why I believe the Kospi and KOSDAQ indices did get hit during the impeachment trials of popular presidents who presided over economic growth. The Kospi index lost 2.7% during President Roh's impeachment trial, although it remained above its yearly lows. During President Park's impeachment, the Kospi index was initially volatile but rallied more than 20% in the six months after the impeachment was upheld. Despite the genuine concern that the presidents would be found guilty of their crimes, the indices rolled on right through the whole process with the Kospi jumping 21%, the KOSDAQ bolting 26% from the opening of the impeachment inquiry to the conclusion of the Constitutional Court decision.



So let's just say you have history on your side. In fact, the impeachment trials themselves, which lasted just over a month for President Roh and President Park, ultimately finished up 25% for the Kospi, 19% for the KOSDAQ, and 85% for the Kospi from the opening of the impeachment inquiry to the conclusion of the Constitutional Court decision. Buy, buy, buy.
A second reason why it doesn't matter more? Because while the headlines dominate the front page, they don't even make it to the business pages. Why should they? I have an old dictum that I used to always say at my old hedge fund. When someone would bring up something that sounded daunting, ripped from the headlines, but had nothing to do with business I would say, "what the heck does that matter to price to earnings ratio of Samsung Electronics?"
Now if you read my book "Confessions of a Street Addict", you will know what a contemptuous autocrat I really was. I can't use the real words I would use to describe myself.
But the dictum rings true now as it did then. The stock of Samsung Electronics (KR:005930), which is a quintessential blue chip, is determined by what you will pay for its future earnings stream. Whatever sex President Roh had with his aides, whatever lies he told about it, whatever votes were taken in the National Assembly had nothing to do with what you would pay - the price to earnings multiple - for that future stream of profits.
Now the difficulty for you is that there is always some yapper, some gasbag, who tries to say that it should play a role, like it can be something akin to inflation, or GDP growth, or federal funds. But the simple fact is that it doesn't.
I would say that this is a case where it is harder this time than it was with President Roh and President Park because the opposition parties are so vociferous in their hatred of President Yoon Suk Yeol, and the mainstream media wants him out so bad, that there is a shroud of gloom emanating from Seoul that is far worse than it was back then. But we have a more robust economy and interest rates that are about half of what they were back then so it's a real bad analogy.
So forgive me if I emphasize it again, but the impeachment and trial of President Yoon Suk Yeol has nothing to do with the price to earnings ratio of Samsung Electronics or any other stock for that matter.
Finally, you have the argument I have continually come back to for ages: what the heck else are you supposed to do with your money? Are you going to call your broker and say you want to switch out of stocks into something that yields almost nothing because President Yoon Suk Yeol is not going to be convicted in the Constitutional Court? Do you want to incur capital gains taxes because of something that doesn't happen in the Capitol?
Now if you keep reading later on I will contrast what roared back then versus what could rock right now because my mantra is there is always a bull market somewhere and there were a ton of them then and there are a bunch now.