South Korea’s stock market surged after Lee Jae-myung won the presidential election, ending months of political uncertainty. The Kospi Index rose 2.7% on Wednesday, pushing its gains from the April low to over 20%. Investors are optimistic about Lee’s plans for reforms and economic growth.
Shares of holding companies, financial firms, and brokerages led the rally. Investors expect Lee to push new laws soon to increase shareholder returns. The Korean won also strengthened, rising 0.7% against the U.S. dollar for a second straight day.
However, government bonds fell as the 10-year yield rose by about ten basis points. This reflects concerns that Lee’s administration will increase spending, leading to more bond issuance. Bond futures for the same maturity hit their lowest level since January.
Lee’s election removes a major uncertainty after former President Yoon Suk Yeol’s brief martial law and ouster last year. Now, markets are focused on Lee’s policies to boost growth through higher government spending, better corporate governance, and stronger labor protections. Ongoing tariff and currency talks with the U.S. also remain important.
South Korea’s economy shrank in the first quarter, showing weakness even before U.S. tariff hikes in April. Still, the post-election market rally signals investor confidence in a long-term recovery. Han Sang-Kyoon, CIO at Quad Investment Management, said Lee’s promise to improve corporate board duties is a major positive. He believes this could reduce the so-called “Korea discount” on valuations.
Despite political risks and a slow economy, Korean stocks and the won have outperformed many Asian peers this year. The Kospi is up 15% so far, rebounding from a bear market earlier in the year due to tariff fears. Many stocks recently hit 52-week highs.
On the campaign trail, Lee set an ambitious target for the Kospi to reach 5,000 points, aiming to end the “Korea discount.” Han predicts that new laws to increase dividends and shareholder returns could push the index above 4,000.
Brokerage and holding company shares rose sharply Wednesday on hopes Lee’s reforms will boost dividends and share buybacks. These holding companies often trade below the value of their assets, a key factor in the Korea discount.
Unlike his predecessor, Lee’s party controls the National Assembly, which may speed up his policy agenda, according to Citigroup economist Jin-Wook Kim. Still, bond market reactions show investors remain cautious about risks like higher debt and stricter labor rules that could affect the outlook.
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