KOSPI Surges from 5,000 to Near 9,000... Tripled in One Year, but Not All Reasons to Celebrate [One Year of the Lee Jaemyung Administration]

Efforts to Resolve the "Korea Discount" Bear Fruit Through Commercial Act Amendments

Challenges Remain: Concentration on Samsung and SK hynix, High Volatility

"The current KOSPI level is a number that was unimaginable just a year ago." The most frequently cited achievement of the first year of the Lee Jaemyung administration is the revitalization of the capital market. The KOSPI index, which failed to reach the 3,000 mark last year, has now surpassed 8,500 in just one year. This is credited to the administration’s strong push to eliminate the "Korea Discount" (undervaluation of the Korean stock market) as a key policy goal from its inception, including aggressive amendments to the Commercial Act. However, behind the sharp stock market rally, challenges remain, such as increased volatility, polarization due to capital concentration in certain stocks, and the marginalization of the KOSDAQ market.

Yonhap News

Close to the 9,000 Mark Just One Year After Inauguration

According to the financial investment industry on June 5, the KOSPI index closed at 8,639.41 on the previous day, marking the first anniversary of the Lee Jaemyung administration. During his presidential campaign in April last year, Lee pledged to usher in the "KOSPI 5,000 era," and now the index is on the verge of reaching 9,000. On Lee's inauguration day, June 4 last year, the KOSPI closed at 2,770.84.

President Lee placed particular emphasis on revitalizing the capital market, even visiting the Korea Exchange as his first field engagement right after taking office. Since last year, three rounds of amendments to the Commercial Act have been pursued, including the codification of directors’ fiduciary duty to shareholders, the mandatory adoption of a cumulative voting system, and the obligation to retire treasury shares. For unfair trading, the administration implemented a "one-strike-out" policy. The strategy was to drive a revaluation of the Korean stock market by strengthening shareholder rights and improving corporate governance. With the government announcing regulations on multiple listings, some large conglomerates withdrew or reconsidered plans to list their affiliates.

Namwoo Lee, Chairman of the Korea Corporate Governance Forum, commented, "Through unprecedented and rapid legal reforms in global history, the principle of investor protection has been established. Developments over the past year were unimaginable a year ago." Junseo Lee, Professor of Business Administration at Dongguk University, also said, "The market environment for resolving the Korea Discount has improved. In that regard, the government did everything it could. On a scale of 100, I would give them 120." It has also been analyzed that the government’s capital market reforms, combined with strong performance expectations for Samsung Electronics and SK hynix, have led to a significant inflow of foreign capital.

"The Pace Was Too Fast"—Concerns over Polarization

However, there are concerns that the pace of the stock price surge was excessive, and that capital was overly concentrated in certain industries and stocks. Junshik Suh, Professor of Economics at Soongsil University, pointed out, "The stock price increase has been too rapid, which is problematic. The effects of value-up and dividend revitalization have been somewhat limited." Professor Junseo Lee also commented, "Liquidity has drained from marginalized stocks, leading to declines in their prices, while bubbles have formed in large-cap stocks. The KOSDAQ market activation policies have also failed to deliver results, which is disappointing." Chairman Lee noted, "There are still many undervalued companies. More than half of all listed companies have a price-to-book ratio (PBR) below 1, indicating many blind spots remain."

Furthermore, in recent days, the sharp market rally has sparked debates over the asset allocation strategy of the National Pension Service. If the proportion of domestic equities greatly exceeds the target, the National Pension Service will have no choice but to sell large volumes of shares to rebalance. There is a possibility that tens of trillions of won worth of shares could be sold during this rebalancing process.

Some in the market have also raised concerns that the pace of reform has been too fast, potentially resulting in side effects. Typical worries include the government’s push for regulation on dual listings and the shortening of the stock settlement cycle (T+1). An industry insider who requested anonymity said, "With the KOSPI surpassing 8,000, it is now time to moderate the pace. I agree with the need for regulation on dual listings, but the recently released procedures for general shareholder consent seem excessive. Now, the impact on corporate competitiveness must also be considered." Another industry source argued that, given that the introduction of T+1 would require an overhaul of the entire market infrastructure, including foreign exchange settlements and securities lending, it is necessary to carefully consider whether this will truly benefit the Korean capital market and retail investors.

This content was produced with the assistance of AI translation services.