'Presidential Election Momentum' Doesn't Boost KOSPI... Bet on Feasible Common Pledges of Both Parties

[Asia Economy Reporter Lee Seon-ae] Although the March 9 presidential election is just around the corner, the 'honeymoon effect' on the stock market following the inauguration of a new president is expected to be limited. Due to the inflation highlighted by the aftermath of the Russia-Ukraine war and the strengthening of tightening policies, volatility in the global financial market environment has increased, making it difficult to expect a special surge related to the election. Moreover, considering past data showing that stock market returns were not particularly high after presidential inaugurations in the domestic market, there is a growing voice urging caution against vague expectations based solely on hopes for the new administration. However, given that the feasible pledges overlap between candidates from both major parties, it is advised to adopt a portfolio strategy focusing on 'sectors benefiting from pledges.'

According to the Korea Exchange on the 28th, the KOSPI fluctuation rates by administration were as follows: Chun Doo-hwan administration 345.8%, Roh Tae-woo administration 32.2%, Kim Young-sam administration -40.1%, Kim Dae-jung administration 78.7%, Roh Moo-hyun administration 160.0%, Lee Myung-bak administration 8.4%, Park Geun-hye administration 13.5%. In fact, the KOSPI growth rate since the Roh Moo-hyun administration has fallen short of expectations. These figures represent the total returns over the entire administration period, but when narrowed down to the first year, negative returns are more common. First-year returns were positive for Kim Young-sam (+38.5%), Roh Moo-hyun (+40.3%), and Moon Jae-in (+6.6%) administrations, but negative for Kim Dae-jung (-7.9%), Lee Myung-bak (-36.9%), and Park Geun-hye (-3.5%) administrations. Second-year returns showed positive results for Kim Dae-jung (+74%), Roh Moo-hyun (+14.2%), Lee Myung-bak (+52.6%), and Park Geun-hye (+1.4%) administrations, while Kim Young-sam (-4.2%) and Moon Jae-in (-14%) administrations recorded negative returns. Kim Seong-geun, a researcher at Korea Investment & Securities, evaluated that "the KOSPI returns in the first year after the presidential election announcement have been somewhat inconsistent."

Byun Jun-ho, head of the investment strategy team at Heungkuk Securities, analyzed, "Looking at the case of the Roh Tae-woo administration, which marked the start of direct elections, the KOSPI rose 20% in the first year of inauguration, but this election effect has weakened in recent times. Since 2000, when foreign investors' influence on the Korean stock market increased, the stock market returns after four presidential inaugurations have not been high." He added, "Cases where the KOSPI rose after a presidential inauguration were likely due to favorable global economic conditions or a friendly stock market environment. Given the current economic situation requires a tightening stance from the government, it is unlikely that the major party candidates will express concrete and new policy momentum or strong intentions for economic stimulus. Therefore, expectations based on hopes for the new administration immediately after the election should be avoided."

Looking at the KOSPI fluctuation rates before and after the election period (average from the 12th to 19th presidential terms), the average increase was 19.1% twelve months after the election. This was driven by expectations that government economic stimulus would improve corporate earnings. However, the current domestic and global stock markets are under downward pressure due to the aftermath of the war, monetary policy burdens, inflation and stagflation concerns, economic instability, and forecasts of declining corporate profits. In particular, geopolitical risks related to Russia and Ukraine are expected to dominate for the time being. Kim Young-hwan, a researcher at NH Investment & Securities, analyzed, "There is a high possibility that military tensions will escalate further, which could lead to another round of increased stock market volatility."

However, there is advice that investment returns in sectors related to policy pledges, rather than the overall market, will be favorable. Kim Seong-geun of Korea Investment & Securities explained, "Looking at sectors rather than the entire market, industries that the new administration focuses on and supports have shown higher returns than the index."

Moreover, this year, the pledges with high feasibility overlap between candidates from both major parties. The securities industry expects that startup support and housing construction, which are linked to jobs for the 20s and 30s age group emerging as a casting vote, are likely to be maintained regardless of who wins. In particular, housing supply is expected to increase regardless of the winner, positively impacting the construction sector. Kim Ki-ryong, a researcher at Yuanta Securities, analyzed, "If candidate Yoon Seok-youl wins, large housing developers with a high proportion of private housing projects will benefit. If candidate Lee Jae-myung wins, mid-sized and small construction companies, which have a relatively lower proportion of public-led projects compared to large companies, will benefit."

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