The Stock Market Rally Under the Yoon Suk-yeol Government: How Far Will It Go... "Will the Korea Discount Be Resolved?"

On the 10th, dealers are working in the Hana Bank dealing room in Jung-gu, Seoul, where the KOSPI opened at 2,660.86, up 38.46 points (1.47%) from the previous trading day. On the same day, the won-dollar exchange rate started trading at 1,225 won, down 12 won from the previous trading day. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Lee Seon-ae] In the Yoon Seok-yeol administration, can the stock market surpass the KOSPI 3000 level reached during the Moon Jae-in administration and reach the 4000 mark? President-elect Yoon has pledged to establish fairness and transparency in the capital market, activate it, and protect individual investors through measures such as ▲abolishing capital gains tax on stocks ▲granting existing shareholders preemptive rights when new businesses are spun off and listed ▲establishing a dedicated monitoring organization for short selling ▲introducing a short selling circuit breaker ▲restricting unlimited insider share sales ▲and revising delisting requirements.

On the 10th, the stock market started strong, buoyed by a sharp rise in the US market. Both the KOSPI and KOSDAQ markets showed gains exceeding 2% in early trading. Although President-elect Yoon’s pledges focused on empowering individual investors, these investors took advantage of the rising market to sell shares. As of 9:40 a.m., they had net sold stocks worth 94.4 billion KRW.

Experts expect President-elect Yoon’s pledges to protect individual investors to have a positive effect on the stock market. So-yeon Park, a researcher at Shin Young Securities, said, "The lack of a protection system for individual investors has been cited as a main cause of the Korea discount. If a compensation system for stock value decline due to spin-offs of new businesses is legalized, it will lead to a revaluation of undervalued parent companies. Improving individual investor protection during corporate splits and IPO processes will be a factor for additional capital inflow into the Korean stock market," she said.

However, there is a cautious atmosphere about whether the rise on this day will immediately lead to a ‘honeymoon rally.’ Since the war between Russia and Ukraine continues and concerns about economic recession are spreading due to soaring inflation, the negative factors outweigh the positive ones. Seung-young Park, a researcher at Hanwha Investment & Securities, emphasized, "It is unrealistic to expect a major change in the market direction after the presidential election. The stock market will follow the trajectory it has been on, and it is better to use the election as a milestone rather than a turning point."

Looking at past cases, the stock market has often shown a favorable trend after presidential elections, but the impact of global economic conditions and domestic and international stock market environments was greater than expectations for the new government.

Since the 12th presidential election held in 1981, in eight presidential elections, the KOSPI rose in all but two cases one year after the election. When President Roh Tae-woo was elected in 1987, the KOSPI rose 91.0% one year after the election. After President Kim Young-sam’s election, it rose 30.8%, and during Presidents Kim Dae-jung (25.4%), Roh Moo-hyun (14.4%), and Moon Jae-in (6.6%), the KOSPI also rose. On the other hand, during Presidents Lee Myung-bak and Park Geun-hye’s terms, the KOSPI fell 36.6% and 0.9%, respectively, one year after the election.

Narrowing the scope to after 2000, when foreign influence on the stock market increased, the stock market generally performed poorly after presidential inaugurations. Looking at the KOSPI fluctuations after President Roh Moo-hyun’s election, it was -10% after one month and -20% after three months. For President Lee Myung-bak, it was -7% and -13%, for President Park Geun-hye, 0% and -2%, and for President Moon Jae-in, 3% and 4%, respectively. Jun-ho Byun, a researcher at Heungkuk Securities, analyzed, "Cases where the stock market rose after a president’s inauguration were more influenced by favorable global economic conditions or a friendly stock market environment rather than expectations for new policies."

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