South Korean stocks continued their post-election rally, with the benchmark KOSPI advancing 1.49% to close at 2,812.05, marking a more than 10-month high. The small-cap Kosdaq also rose 0.8% to close at 756.23. Analysts at Nomura expect the KOSPI to hit 2,900 by the end of the year, fueled by anticipated capital market reforms under President Lee Jae-myung.
The president is also expected to focus on stimulating domestic demand through an extra budget planned for July. The momentum in the domestic stock market is primarily attributed to President Lee’s proposed policies aimed at boosting the market. His key pledges include revisions to the Commercial Act, easing dividend income tax, and institutionalizing the retirement of treasury stock.
The Democratic Party of Korea reintroduced an amendment to the Commercial Law that had been previously canceled. This revision aims to expand the duties of directors to include loyalty to shareholders, make electronic voting mandatory at shareholders’ meetings, and activate a concentrated voting system. The opaque corporate governance structure has been a contributing factor to the “Korea Discount” (undervaluation of the Korean stock market).
Lee Jae-myung capital market reforms
Analysts suggest that the improvement in governance through these legal revisions could lead to a re-evaluation of stock prices for holding companies and financial firms. Stock market experts predict a continued upward trend for the KOSPI, driven by favorable foreign supply and demand conditions and the new government’s policies.
Shin Min-seop, a researcher at DS Investment & Securities, noted, “The KOSPI is expected to maintain its positive trend for the foreseeable future.”
Although there may be short-term profit-taking sales, Shin views this as an opportunity to buy at lower prices. Historical data support the optimistic outlook. The KOSPI has generally responded positively before and after presidential elections since the revival of direct elections in 1987.
A month after the elections, the KOSPI has risen by an average of 4.7%, and by 15.4% after a year. The highest first-year increase was in 1987 under President Roh Tae-woo, with a 91% rise. In contrast, the KOSPI experienced declines during the first year of the presidencies of Lee Myung-bak, Park Geun-hye, and Yoon Suk-yeol.
Lee Seung-woo, a researcher at Eugene Investment & Securities, added, “The stock market atmosphere post-election is expected to be favorable, particularly for the securities and renewable energy industries, which are expected to diverge significantly from the previous administration.”
As the new government implements its economic policies, market participants are closely watching whether the KOSPI can maintain its upward momentum and potentially realize the ambitious vision of the “KOSPI 5000 era.
