KOSPI Index Makes Multi Year High As Policy Shifts Fuel Renewed Optimism

The KOSPI Index is riding a wave of bullish sentiment, closing at 3,108.25 on Wednesday, a level not seen in nearly four years, having earlier made a new high at 3,129.09. This marked a 0.15% increase from the previous session and moved the index above the psychologically significant 3,100 mark before tailing off into the weekend, 1.6% down from highs, yet still 2.1% up on the week.

The surge reflects a range of factors, including easing geopolitical tensions, strong earnings forecasts, and, most notably, the market’s enthusiastic response to the new administration of President Lee Jae-myung.

The index has been helped along by SK Hynix shares, itself also setting new highs at 291,500 on the day, for a 2.69% gain that brought YTD returns to an impressive 67%.

June alone has seen the KOSPI gain 15%, a testament to the robust capital inflows and renewed investor confidence in the South Korean market. The momentum was particularly strong in the previous session (June 24th), when the index advanced almost 3% in a single day, propelled by a ceasefire in the Middle East and the subsequent influx of foreign investment.

Year-to-date, the KOSPI has climbed 709.31 points, or about 29.57%, making the index a huge outperformer on global markets over the period. However, the most striking gains have occurred since President Lee’s inauguration on June 4th. This “Lee Jae-myung effect” is largely attributed to expectations of significant economic stimulus measures and favorable liquidity conditions under the new administration. The rapid rise represents one of the most aggressive rallies in recent memory.

What has been driving the index?

This market enthusiasm is not solely based on sentiment. The KOSPI’s surge is underpinned by improving earnings estimates, particularly within the securities sector. The KRX Securities Index has skyrocketed by more than 40% in June, reflecting significantly improved earnings forecasts for the second quarter of 2025. Mirae Asset Securities, for example, has seen its projected net income for Q2 rise from 229.6 billion KRW to 233.5 billion KRW, signaling broader optimism for earnings growth across KOSPI-listed companies. These positive earnings projections are further supported by new government initiatives designed to stimulate capital markets and enhance corporate profitability.

President Lee’s administration has made addressing the so-called “Korea discount” a central tenet of its economic policy. This term refers to the persistent undervaluation of South Korean stocks compared to their global peers, a phenomenon often attributed to weak shareholder protections and opaque corporate governance structures within Korean conglomerates, or chaebols.

To combat this, the government is actively pursuing corporate governance reforms, including imposing stricter fiduciary duties on board members, strengthening the rights of minority shareholders, and cracking down on controversial treasury stock practices.

Furthermore, the government is implementing tax reforms designed to incentivize higher dividend payouts, making South Korean stocks more attractive to both domestic and international investors. Regulatory changes are also underway to curb unfair trading practices, with a “one-strike-out” policy aimed at deterring illegal trading activities.

Recent positive assessments from MSCI regarding South Korea’s short-selling market accessibility further bolster the bullish case. The upgrade suggests improvements in market infrastructure and transparency, a crucial step as South Korea seeks to be reclassified from an emerging to a developed market. While challenges remain, particularly concerning foreign exchange market access, the overall trend indicates a concerted effort to align South Korean market practices with international standards.

However, the market’s rapid ascent is not without potential risks. The memory of the sharp market decline in December 2024, triggered by President Yoon Suk Yeol’s brief declaration of martial law, serves as a stark reminder of the potential for political instability to disrupt market confidence. While President Lee’s election has been met with enthusiasm, the implementation of his ambitious reform agenda may face resistance from powerful vested interests, potentially dampening investor sentiment.

Moreover, some chaebols have already voiced concerns that the proposed corporate governance reforms could hinder their long-term investment strategies. Navigating these competing interests will be crucial for the new administration to maintain market momentum.