What's going on?
A massive political scandal has been ongoing in South Korea over the past few months, and it looks like it’s about to ensnare the anointed heir to the Samsung corporate empire.
What does this mean?
The scandal concerns powerful South Korean businessmen allegedly paying bribes to those close to the President (who was impeached late last year). On Monday, prosecutors asked courts for the power to arrest Samsung heir Lee Jae-yong, accusing him of paying bribes in exchange for political approvals of certain business decisions (specifically, merging some Samsung subsidiaries). The moves were seen as crucial in cementing Lee’s control over the extensive Samsung conglomerate. Samsung denies any wrongdoing and it’s early stages in the legal drama for Lee, but it certainly has investors’ attention (Samsung stock was down 2% on Monday).
Why should I care?
For the stock: Samsung’s reputation suffers yet another setback.
Samsung has had a rough few months: the company was forced to recall its Galaxy Note 7 smartphone last year due to its penchant for bursting into flames and now its soon-to-be leader is facing a criminal probe. However, Samsung is a huge company and can afford to withstand a few punches. Also, this isn’t the first corruption scandal that Samsung has weathered. While it may be a big political deal in South Korea, it could turn out to be less concerning for Samsung’s shareholders.
The bigger picture: South Korea’s economy is facing various threats.
The bribery scandal has rocked both the government and large Korean conglomerates, like Samsung, which play a big role in the economy. Continued revelations related to the scandal could be bad news for these companies, but that’s not the country’s only risk in the year ahead. South Korea is the world’s fifth-biggest exporter and, as such, its economy will suffer if world trade is inhibited (e.g. due to higher tariffs from a Trump administration).