(News Bulletin 247) – The Kospi, the main index of the Seoul Stock Exchange, has risen 48% since the start of the year, marking by far the largest increase in developed countries. Falling valuations, the end of political uncertainty, reforms to make the market more attractive to investors and the rise of AI are all elements that explain this rally.

Korean culture has been taking center stage for several years. The year 2025 is no exception.

The feature film “KPop Demon Hunters” has become the most popular Netflix film of all time, with 325 million views. The famous K-pop group Black Pink went on a world tour, including two dates at the Stade de France. And the final season of Squid Game, a globally successful Korean series, aired in the spring (also on Netflix).

This ‘soft power’ is spreading to other parts of society, notably makeup, with the Korean “beauty routine”, “K-Beauty”, which is becoming more and more popular. To the point that certain Korean cosmetics brands are starting to step into L’Oréal’s fields.

South Korea is also on the rise on the stock market. At least this year. Since January 1, the Kospi, the flagship index of the Seoul Stock Exchange, has increased by 50.5%.

and eclipses the performance of the CAC 40 (obviously), which takes 7.3%, but also the Nasdaq Composite (+17%), the Dax 40 in Frankfurt (+21.76%) or the Ibex 35 in Madrid (+33.5%).

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Another emerging country on the stock market

In reality, the Seoul Stock Exchange has the strongest performance of the main global markets (even Hong Kong is far away) and of developed countries.

Although the term “developed” doesn’t seem to apply that much. In a note published in July 2024, Goldman Sachs explained that Korea was classified on the markets as an “emerging” and “not developed” country.

The fault lies with what we call the famous “Korean discount”. This market discount refers to the fact that Korean companies are traditionally valued at much lower stock multiples than comparable companies in other markets.

According to Franklin Templeton, this discount can be explained by a set of factors, such as corporate governance which leaves much to be desired or even “poor” treatment of minority shareholders.

“The ‘Chaebol’ (the term for large Korean family conglomerates like Samsung, editor’s note) structure of the companies, which is characterized by cross-shareholdings and family control of the companies, without proportional economic participation, is also a factor which weighs on valuations,” added the financial intermediary.

Political uncertainty coming to an end

To return to the stock market performance of Korean indices, how can we explain that they experienced such a pronounced increase in 2025?

The first reason is actually quite simple: Korean stocks had fallen very low.

In April, the Kospi even entered a “bear market”, a bear market phase which occurs when an index shows a drop of 20% compared to its last peak reached (in this case July 2024).

Like all global markets, Korean stocks suffered from the announcement of Donald Trump’s reciprocal customs duties. The Seoul market was also still weighed down by very significant political uncertainty, a few months after Korean President Yoon Suk Yeol imposed martial law for less than 24 hours. Which led to his dismissal.

This political uncertainty ended last June, after the presidential victory of Lee Jae-myung of the Democratic Party (center left). His election constitutes one of the foundations of the rally in Korean stocks. Especially since the leader had declared that he wanted to make growth a priority. The Kospi gained 2.45%.

“The market is reacting in Korea because there is a new president in place after the declaration of martial law,” Tom Ramage, an economic policy analyst at the Korea Economic Institute of America, a think tank supported by the South Korean government, told the New York Times. “People were really looking for some stability,” he adds.

A Korean president with a stock slogan

In addition to negotiations with the Trump administration which led to customs surcharges being limited to 15% (as for Europe and Japan), the Korean president has implemented a number of measures and reforms to energize the country. But also (and above all) to attract foreign investors to the market.

One of his first trips, after being elected, took place at the Seoul Stock Exchange, a visit during which he pledged to support the place. Moreover, during his campaign, Lee’s slogan was “Kospi 5,000” (“the Kospi at 5,000 points, knowing that it currently stands at 3,611 points). A bit as if Emmanuel Macron had led a campaign with the slogan “the CAC 40 at 10,000 points”.

One of his major issues was to change the commercial code to absorb the “Korean discount” mentioned previously, so as to protect the interests of minority shareholders. The reform, approved last September, according to Bloomberg, notably established the legal responsibility of members of the board of directors towards all shareholders, and not just the largest. The text also limited the voting rights of the most powerful shareholders to 3% when an audit committee is appointed. A victory for the Korean president in the face of resistance from the “chaebol”.

“By limiting the voting rights of major shareholders, the measure in turn protects minority shareholders. The revision marks the beginning of efforts to eliminate the Korean discount,” Kim Doo-eon, an analyst at Hana Securities, told The Korea Times.

“Korea is excluded from the Morgan Stanley Capital International (MSCI) watch list for developed markets due to low confidence among foreign investors, but this revision (of the commercial code, editor’s note) increases the chances of inclusion next year and strengthens the prospects of inclusion in the other index, the MSCI Developed Markets by 2027”, appreciated, also from Korea Times Suh Sang-young of Mirae Assets Securities.

Lee Jae-myung had previously (mid-June) unveiled a stimulus plan of more than $20 billion to boost the country’s growth. Among the measures taken is the distribution of “expense coupons” to Koreans for an amount close to 100 euros. Aid for the construction sector as well as small businesses was also included, according to The Korea Herald.

AI and the Japanese example

In mid-July, Paulo Salazar, head of emerging markets at Candriam, cited “the optimism aroused by the recently announced national reforms and the budgetary support granted by the new president, Lee Jae-myung” to explain the good performance of the Seoul Stock Exchange.

Lee Jae-myung’s victory also gave a spotlight to efforts undertaken since last year by the South Korean authorities. The Korean Financial Services Commission announced in February 2024 a program called the “Corporate Value Up program”, a sort of code of good conduct, to encourage Korean companies to promote shareholder profitability. Goldman Sachs explains that this program targets, for all Korean companies listed on the Kospi, a return on equity of 10% over three years, on average, as well as an improvement in governance scores.

In fact, Korean markets have attempted to replicate similar if not identical initiatives taken by the Tokyo Stock Exchange, which have been successful, as we explained in a previous article.

“If Korea manages to improve the listed company value like Japan did, the Kospi could reach 4,500 points,” Lee Han-young of Vogo Fund Asset Management told The Korean Daily Economic.

A final factor can explain the good dynamics of Korean stocks, namely the rise of artificial intelligence, a theme which has driven Wall Street for several years but which has spread to several other places, notably the Chinese and Korean markets. Remember that Samsung Electronics remains one of the largest foundries and therefore manufacturers of chips in the world, and even the largest behind the Taiwanese TSMC (which nevertheless blithely dominates the market).

Moreover, Samsung Electronics shares and those of SK Hynix, another Korean semiconductor manufacturer, jumped 3.7% and 9.9% last week after the two groups signed letters of intent for contracts with the American start-up OpenAI.

Here again, Lee Ja-myung made his contribution, via a key appointment. “President Jae-Myung Lee has appointed Jung-Woo Ha, head of AI at Naver (a company nicknamed the “Google of South Korea”, Editor’s note), as principal secretary for AI and future strategy,” notes Edmond de Rothschild Asset Management.

However, the Korean president will have to redouble his efforts, according to analysts, to push the Kospi up to 5,000 points.