[Initial Moment] Will the 'Naranim' Rally Begin?

President-elect Yoon Suk-yeol attended the transition committee secretariat meeting held at the Presidential Transition Committee in Tongui-dong, Jongno-gu, Seoul on the 22nd, and remained tight-lipped after finishing his remarks. Photo by Yoon Dong-ju doso7@

When Will the ‘Yoon Seok-yeol’ Rally Begin?

One might wonder if the stock market’s lack of rise is also the fault of the ‘nara-nim (President)’. However, this presidential election was somewhat different. In 2020, due to COVID-19, the KOSPI dropped to 1400, sparking the Donghak Ant Movement, which increased the number of individual investors to 10 million, leading to a flood of pledges aimed at appeasing them. Especially, many pledges targeted investors in their 20s and 30s who turned to the stock market amid soaring real estate prices. Among these, President-elect Yoon proposed pledges to protect individual investors, including strengthening capital market transparency, protecting individual investors, reforming stock tax systems, and revising the physical division system, which helped him secure the presidency.

Among these, the abolition of capital gains tax on stocks is a major point of interest. Currently, capital gains tax of 22-33% is imposed only on major shareholders (1% for KOSPI, 2% for KOSDAQ and KONEX, 4% for unlisted companies, or holders of single stocks worth 1 billion KRW or more). From next year, anyone with annual gains exceeding 50 million KRW will have to pay 20% (for taxable income up to 300 million KRW) or 25% (for income exceeding 300 million KRW) capital gains tax. If this law is implemented as planned, the principle of ‘taxes where income exists’ can be upheld. However, it will significantly affect returns. The securities industry notes that since 2000, the average annual returns of KOSPI and the US S&P 500 have been 8.4% and 7.1%, respectively; after paying a 22% capital gains tax, KOSPI returns would drop to 4.6%. Accordingly, it is expected to impact investor demand and supply.

However, it is not easy to block this immediately. Possible approaches include excluding stock profits from the taxable income range or abolishing the related law (Financial Investment Income Tax Act) itself and repealing the current major shareholder taxation system, but both violate tax fairness. Even if a method is decided, a full abolition of capital gains tax on stocks could be exploited by controlling shareholders for tax avoidance in succession planning. Practices such as channeling orders to monopolistic companies, transferring wealth, and then cashing out through stock sales could become widespread. Alternatives to prevent such market distortions must also be prepared.

Even if the method and alternatives are decided, it would be ideal if the legislative process proceeds smoothly as per the president-elect’s will, but there is the hurdle of bipartisan agreement. Considering the friction arising during the regime change, it is realistically difficult for new tax laws to be enacted before the capital gains tax is imposed.

Since the 15th president, KOSPI returns have varied by president. During the honeymoon period (one year), the highest KOSPI increase (42%) was after the election of the late President Kim Dae-jung. For KOSDAQ, the highest return (33%) was after President Moon Jae-in’s election. Over the entire term, the highest KOSPI return was during the late President Roh Moo-hyun’s tenure (KOSPI 184%). These fluctuations do not appear to be politically motivated. Each administration pursued different economic policies, and external conditions varied. Rather, the stock market tends to follow a curve similar to South Korea’s export graph. Therefore, some in the securities industry analyze that presidential elections have little impact on the stock market.

However, pledges such as the abolition of capital gains tax by President-elect Yoon are measures that could directly invigorate the stock market. If these end up as mere wishful thinking or empty promises due to practical difficulties, it could mark the beginning of blaming the ‘nara-nim’. It is a moment to anticipate what trajectory President-elect Yoon’s will might leave on the stock market.

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