Kospi breaks 4,000: Time to strengthen the real economy

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Kospi breaks 4,000: Time to strengthen the real economy

Published: 28 Oct. 2025, 00:00 Updated: 28 Oct. 2025, 09:28

Audio report: written by reporters, read by AI

Korea's benchmark Kospi opens surpasses the 4,000 mark for the first time in history on Oct. 27. The figures are shown at a digital screen inside a dealing room at a Hana Bank Jung branch in Jung District, central Seoul. [YONHAP]

The benchmark Kospi has surpassed the 4,000 mark for the first time, setting a new milestone in Korea’s capital markets. The surge reflects a combination of factors: ample liquidity fueled by low interest rates, a rebound in the semiconductor cycle driven by rising demand for artificial intelligence and expectations of further rate cuts by the U.S. Federal Reserve. Investor confidence also grew as the Lee Jae Myung administration’s commercial law amendments strengthened shareholder rights, including stricter fiduciary duties for directors and the expansion of multiple derivative suits. These governance reforms have raised hopes of resolving the longstanding “Korea discount.” As foreign investors poured back in, their share of market capitalization rose to 34 percent, exceeding 1,100 trillion won for the first time.

While the rally signals renewed optimism, it also calls for caution. Much of the recent surge has been fueled by an influx of funds rather than corporate earnings or economic fundamentals. Investor deposits have jumped 40 percent this year — from 57 trillion won to 80 trillion won — and credit financing for stock purchases has surged nearly 50 percent to 23 trillion won. The rise of “borrowed investment” reflects a fear of missing out, as investors chase momentum in a rising market. Liquidity that once flowed into real estate is now moving into stocks amid tighter property regulations, amplifying bullish sentiment.

But market exuberance detached from the real economy rarely lasts. Korea faces mounting headwinds, including slowing exports from renewed U.S. tariffs and weak domestic demand. Growth next year is widely expected to stay below 2 percent, and debt burdens among small businesses and marginal firms remain heavy. Without stronger fundamentals, the current rally risks becoming a “mirage.” Nearly half of the market’s recent capitalization gains came from just two companies — Samsung Electronics and SK hynix — while many mid- and small-cap stocks have declined. Despite the Democratic Party’s applause over the 4,000 milestone, policymakers must recognize the risks beneath the euphoria.

The growing share of foreign investors is a double-edged sword. If U.S. inflation resurges or the AI boom proves unsustainable, foreign funds could exit swiftly, triggering a sharp correction. Regulators must closely monitor signs of overheating such as surging credit loans and ensure mechanisms are ready to stabilize volatility.

Ultimately, the foundation of the stock market lies in economic strength. Companies must boost competitiveness through innovation, while the government builds a resilient industrial ecosystem and productivity base. Only then can Korea develop a form of “securities capitalism,” where investment capital flows into industries rather than property. That would mark the true end of the country’s longstanding myth of ever-rising real estate prices.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.