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Lee Jae-myung’s market honeymoon: Will the Kospi rally endure?

Published: 16 Jun. 2025, 07:00 Updated: 16 Jun. 2025, 14:26

JIN MIN-JI
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President Lee Jae-myung meets employees of the Korea Exchange at its office in Yeouido, western Seoul, on June 11. The picture is from Lee's Instagram account. [SCREEN CAPTURE]

The benchmark Kospi had rallied for seven straight sessions through Thursday this month, as President Lee Jae-myung's inauguration on June 4 is reviving a market that had long been subdued.

With the gains of more than 5 percent largely led by foreign investors, analysts are revising up the Kospi outlook, weighing on the new administration's strong will on market-friendly policies.

The Kospi on Friday shed by 0.87 percent following Israel's attacks on Iran, sparking questions about whether the bullish sentiment can endure amid external uncertainties.

“The market has seen an unusually sharp rally since the new administration took office,” said Kang Jin-hyeok, a market analyst at Shinhan Securities.

“The timing of the president’s inauguration was in line with internal and external factors, including the recent U.S.-China trade deal negotiations, resolution of Korea’s political uncertainty caused by the government vacuum and the new administration’s market-friendly policies.”

The United States and China concluded two days of tense negotiations on Wednesday, raising expectations that the United States will ease the semiconductor export controls to China, Korea’s key trading partner.

That anticipation pushed up the stock prices of Korea’s chip companies, like SK hynix, which saw its share jump 7 percent since the president's inauguration.

Assertive market-friendly gesture

While some view the recent surge as a short-lived honeymoon rally, others say Lee’s policies could propel the index to nearly double its current level.

Lee, who has set an ambitious goal of driving the Kospi to 5,000, is aggressively advancing market-friendly reforms primarily focused on enhancing transparency and strengthening investor confidence.

Lee on Wednesday called on the Korea Exchange to adopt stricter measures against unfair trading, advocating a “one strike, you’re out” policy targeting violations such as stock manipulation.

Lee had said in his presidential campaign that the amendment to the Commercial Act would be processed within two to three weeks after taking office. The act, mandating a board of directors to be responsible for protecting the rights of shareholders, is marked as a key initiative to achieving his Kospi goal.

“Given the president’s strong determination, the passage of the amendment to the Commercial Act appears to be only a matter of time,” Kang added.

For the rally to sustain, Korea’s market fundamentals need to improve.

“If the Korean market’s average valuation visibly rises above its historical average, it would suggest a structural shift rather than a short-term rise,” said Lee Young-won, an analyst at Heungkuk Securities. “But if concrete measures fail to materialize, the market’s short-term gains could easily stall or reverse.”

The Kospi’s 12-month forward price-to-earnings (P/E) ratio, a valuation metric investors use to assess whether an index is fairly priced based on future profit expectations, currently hovers around 9.6 times. This figure sits below the long-term average of 9.97 times.

Resolving the conflict of interest between the owning "families" of the chaebol — Korea's large business conglomerates — and the shareholders of those companies, primarily regarding dividend payouts, will also determine Kospi movements.

“Korea has historically prioritized the interest of majority shareholders, like chaebol owners, over minority shareholders, which was one of the main reasons the Korean market was undervalued,” Lee said.

An electronic display board at Hana Bank in central Seoul shows Kospi that closed at 2,920.03, down 0.87 percent from a day earlier, following Israel's strikes on Iran. [YONHAP]

Kospi forecast
Korea Investment & Securities raised its Kospi forecast range for the second half of the year, lifting the band to between 2,600 and 3,150 points from the earlier projection of 2,400 to 2,900, according to a report released Thursday.

Analyst Kim Dae-jun attributed the upward revision to anticipated improvements in shareholder return policies, stronger corporate earnings, and expectations of continued interest rate cuts.

The Bank of Korea cut the base interest rate to 2.50 percent in May, down from 3.50 percent last August.

The latest upward movement of the Kospi results from accumulated efforts by the current and previous administrations — though to little success — to resolve the so-called Korea discount, which refers to investors’ tendency to undervalue Korean assets mainly due to geopolitical risks.

"We cannot say that the market-friendly policies introduced in the previous administrations were ineffective," Lee from Heungkuk Securities said, citing the corporate value-up program, a government-led initiative introduced in 2024 to address the persistent undervaluation of Korean stocks.

“With such efforts accumulated, investors in the market now seem to think that it’s time to finally acknowledge Korea’s efforts.”

Achieving Kospi 5,000 points is “not a far-fetched idea,” according to Won Jai-hwan, a finance professor at Sogang University.
“Korea’s average price-to-earnings ratio is almost half the level of the ratios in advanced economies. Through a continued effort to raise market transparency, the ratio could match the advanced market average, giving Kospi a boost to hit 5,000 points.”

BY JIN MIN-JI [[email protected]]