South Korea’s top economic policymakers said the volatility in the finance and currency markets is excessive, calling on institutional investors to play a responsible role in the fluctuating market as they seek to cushion the blow of political strife incurred by President Yoon Suk Yeol’s declaration of martial law.

“Attendees of the meeting agreed that although volatility in the financial and currency markets has been increasing recently, the volatility is somewhat excessive compared to the solid fundamentals and external soundness of the economy,” the finance ministry said in a statement after Deputy Minister and Finance Minister Choi Sang-mok held a meeting with the chiefs of the Bank of Korea, Financial Services Commission and Financial Supervisory Service on Tuesday.

The benchmark Kospi added 2.43 percent to finish at 2417.84 points on Tuesday, snapping a four-day losing streak after President Yoon abruptly declared martial law on Dec. 3. Institutional investors pushed up the market, scooping up shares worth 459.6 billion won ($321.8 million).

“The government and the Bank of Korea have sufficient capacity for market response and can achieve a reversal in market sentiment against excessive market volatility. We plan to respond as actively as possible,” the statement said.

Korea's international reserves stood at $415.4 billion as of the end of September 2024, the world's ninth-largest total after those of China, Japan, Switzerland and India, among others.

Korea holds net foreign assets of $977.8 billion. A country's position of net foreign assets is a key macroeconomic indicator of its overall financial health, which shows whether the country is a net creditor or debtor to the rest of the world.

As institutions have been net buyers of Korean stocks and foreigners have started to shop for bargains, it is necessary for institutional investors such as pension funds to continue to play a responsible role and for individual investors to make decisions with a calm perspective, they said.

The tech-heavy Kosdaq closed up 5.52 percent at 661.59 points, offsetting Monday’s sharp fall of 5.19 percent.

The Korean currency also cut losses against the US dollar. The won rose 0.27 percent to 1,428 against the greenback as of 4:40 p.m., following its depreciation to 1,432.00 on Monday.

The prosecution's swift response in the martial law fiasco appears to have heightened market expectations for shortening the period of political uncertainty, according to Seo Sang-young, a researcher at Mirae Asset Securities.

Prosecutors requested a separate warrant to arrest the former defense minister, who allegedly proposed the short-lived martial law imposition.

The Justice Ministry imposed an overseas travel ban on the president as authorities investigate allegations of rebellion and other charges.

"The expectation that political uncertainty will not reach its worst gave the market a sense of relief," Lee Kyung-min, a Daishin Securities analyst said, echoing Seo's view on the market rebound.

Later in the day, Lee Bok-Hyun, the head of the Financial Supervisory Service, met with analysts of global investment banks to affirm the government’s commitment to pushing for measures to advance the capital market.

Such measures include abolishing capital gains taxes on financial investment income and revising the Capital Markets Act, a water-down version of the main opposition party’s proposal to amend an article of the Commercial Act, designed to expand the responsibilities of a company director to the interest of the shareholders.

Pending economic issues like the government-led Corporate Value-Up program were on the table as analysts raised concerns over the exacerbation of downside risks in the event of prolonged political turmoil.

“We are fully aware of market concerns caused by recent political uncertainty, so we will put utmost efforts to minimize the impact of this situation on the economy and finances,” Lee said.