The recent election results have dispelled a significant concern looming over the local market regarding the nation’s future political trajectory in the wake of ex-president Yoon Suk Yeol’s temporary enforcement of martial law last year. A sequence of events that led to his removal from office and led to an expedited election. South Korea’s leading share index took strides towards a bull market, while the Korean won gained strength, following the anticipated victory of Lee Jae-myung in the presidential race. This ended a period of political leadership instability that went on for several months.
The national stock index, KOSPI, demonstrated a significant uptick of 1.9% at the beginning of Wednesday’s dealings. Similarly, the Korean won appreciated by 0.3% versus the US dollar, marking a continuation of its upward movement for the second consecutive trading day. On the flip side, Korean government bonds were not as impressive, with the 10-year yield growing approximately 6 basis points. This signaled worries over potential increased supply owing to an expected expansion of fiscal policy under the leadership of the latest administration.
Following this election, a main point of concern dominating the local market – the future political path of the nation post the brief martial law imposed by former President Yoon Suk Yeol – has been put to rest. The focus of the market has now shifted towards Lee’s growth bolstering strategies which rely heavily on increased government expenditure, heightened corporate governance and enhanced labor right protections.
These strategies also focus on wrapping up ongoing tariff and currency discussions with the Trump administration. South Korea’s economy saw a setback during the first quarter, highlighting its frailty even prior to the U.S. President Donald Trump’s proclamation of an increase in tariff rates in the early part of April.
Despite the ongoing political uncertainties and sluggish economy, Korean equities and the won have remained resilient throughout the year, outperforming many of their Asian counterparts. The Korean currency received a boost following the removal of Yoon in April and has since emerged as one of Asia’s best performers.
Further, the Kospi index has posted returns of around 12% so far this year, prior to the election. This is reflective of investor sentiment seeking value post its descent into a bearish market earlier this year due to concerns over imposed US tariffs.
The index’s performance was additionally bolstered by increases in the industrial and energy sectors. This includes nuclear energy equities, shipbuilding, and weapons export companies. The finance sector also played a significant role in the surge of Kospi during the period leading up to the election, anticipating that the corporate reforms proposed by the candidates would deliver positive outcomes.
During his campaign, Lee had expressed an ambitious aim for Kospi, projecting its rise to the 5,000 point mark, although he did not provide a timeline for achieving this target. Despite presenting a steep ascent from its current level, it underlines his focus on the equity market.
He has pledged to elevate the valuation of domestic stocks and counteract the so-called ‘Korea discount.’ This ambition, although it may seem lofty, emphasizes his focus on the stock market, with aspirations to improve the standing of local stocks.