The South Korean won dropped to a more than two-year low against the US dollar on Tuesday, while exchange traded funds linked to South Korean stocks fell after President Yoon Suk Yeol declared martial law in an unannounced late-night address live on YTN television.

The South Korean unit fell to as low as 1,430.82 won per dollar, the lowest since October 2022. It was last down 1.9 percent at 1,430.60.

"It's uncertainty driven.. one of those 'shoot first, ask questions later' (moves)," said Christopher Wong, FX and rates strategist at OCBC in Singapore. "Given the lack of information, the uncertainty may still keep Korean won under pressure in the interim."

Yoon said he had no choice but to resort to such a measure in order to safeguard free and constitutional order, saying opposition parties have taken the parliamentary process hostage to throw the country into a crisis.

Stocks listed overseas swooned. The MSCI South Korea ETF fell 4.5 percent, while the Franklin FTSE South Korea ETF slid 3.2 percent.

With losses of more than 9 percent so far this year, the won is one of Asia's worst performers and has been persistently under pressure as the Bank of Korea cut rates aggressively to support the economy and as investors fled a market they see as exposed heavily to exports and to US trade tariffs on China.

"The Korean won is already under pressure from the looming threat of tariffs and their detrimental impact on export-driven economies," said Rong Ren Goh, a portfolio manager in the fixed income team at Eastspring Investments in Singapore.

"This latest development is likely to exacerbate the currency’s weakness, encouraging speculators to use the won as a high-beta proxy for expressing tariff-related risks." (Reuters)