Seoul, South Korea – South Korea's benchmark KOSPI index has surged past the 3,000-point threshold, closing at 3,021.84 on June 20, marking a significant milestone not seen since December 28, 2021. This impressive recovery, achieved despite ongoing geopolitical tensions in the Middle East, is largely attributed to renewed optimism surrounding a supplementary budget of over 20 trillion won, expected to inject vitality into the domestic economy. The market's capitalization also hit a new all-time high of 2,472 trillion won.
The breakthrough came after two previous attempts earlier in the week, on June 17 and 19, where the KOSPI briefly touched 2,990 but failed to sustain the momentum due to foreign selling. However, on June 20, a concerted buying effort from both foreign and institutional investors, who net-purchased 562.6 billion won and 37.2 billion won respectively, propelled the index across the critical 3,000-point line.
The KOSDAQ also closed higher, gaining 9.02 points (1.15%) to reach 791.53, its highest level since August 1, 2023. Lee Jae-won, a researcher at Shinhan Investment Corp., noted that "stocks that are expected to benefit from 'public welfare consumption coupons,' such as film and cosmetics companies, showed strong performance."
Presidential Office Hails Market Surge as Vote of Confidence
The Presidential Office was quick to highlight the achievement, with Spokesperson Kang Yu-jung stating in a briefing that "the stock market has risen by 11.96% since the inauguration of the Lee Jae-myung administration." She emphasized that "this rise, which surpasses the slight declines seen in other G20 nations during the same period, can be interpreted as a vote of confidence in the new government."
This positive sentiment extends beyond the KOSPI. South Korea's stock market has demonstrated the highest returns among G20 nations this year, a stark contrast to the "escape from the domestic market is intelligence" jibe that circulated last year due to its sluggish performance.
Currency Strength and Policy Expectations Fuel 'Buy Korea' Trend
A significant factor in the KOSPI's resurgence is the reversal of foreign investor sentiment, largely driven by the strengthening Korean won. According to the Korea Exchange, foreign investors had been net sellers of KOSPI stocks for nine consecutive months from August last year to April this year, offloading a substantial 38.5 trillion won. Notably, in April alone, following the announcement of tariff policies by then-U.S. President Donald Trump, foreign investors net-sold 9.4 trillion won.
However, the monthly average won-dollar exchange rate, which had hovered above 1,400 won from December last year to April this year, fell to 1,390.7 won last month. This decline in the exchange rate has spurred foreign investors to switch to net buying, driven by the prospect of currency gains as the won continues to appreciate. Furthermore, the inauguration of the Lee Jae-myung administration, which has pledged to usher in a "KOSPI 5,000 era" with various market-boosting measures, has significantly amplified expectations for pro-market policies.
Since the presidential election on June 3, the KOSPI has consistently set new year-to-date highs. As of June 20, the KOSPI's return in June stands at an impressive 12%, making it the top performer among G20 stock markets, many of which have seen only marginal gains of around 1%. The strong performance this year, with KOSPI and KOSDAQ recording returns of 25.9% and 16.7% respectively, is also partly due to a favorable base effect from last year's underperformance. These figures comfortably outpace major global indices like the U.S. S&P 500 (+1.7%), Nasdaq Composite (+1.2%), China's Shanghai Composite (+0.2%), and even Germany's DAX (+15.8%).
A Different Rally: Foreigners in the Driver's Seat
The current KOSPI rally to 3,000 differs significantly from its first breach of the mark in 2021. The previous surge, which saw a remarkable 46% increase from June 1, 2020, to January 7, 2021, was largely spearheaded by retail investors, giving rise to the "Donghak Ant Movement." During that period, individual investors accounted for a dominant 69.0% of trading volume, dwarfing the contributions of foreign (14.0%) and institutional (15.9%) investors.
In contrast, the current 25.9% ascent since January 1 of this year has seen a shift in leadership, with foreign investors taking the baton from institutions. During this period, foreign investors' trading volume accounts for 31.8%, while individual investors' share has shrunk to 48.7%. This indicates a more institutionally and foreign-led rally, potentially signaling greater fundamental strength.
External conditions are also vastly different. In 2021, interest rates were low, with the benchmark rate decreasing from 0.75% to 0.5%, and global liquidity was abundant due to the COVID-19 pandemic. This year, while the benchmark interest rate is gradually decreasing from 3.0% to 2.5%, it cannot be characterized as a low-interest environment. Instead, domestic factors such as the resolution of political uncertainty and expectations for the new government's market-boosting policies are playing a more significant role.
Path Forward: Corporate Governance, Pension Reform, and Trade Deals
The sustainability of this upward momentum hinges on both internal and external factors. Domestically, experts emphasize the need for tangible institutional improvements and securing robust market liquidity. Externally, trade negotiations with the United States, particularly concerning tariffs, are identified as a crucial determinant.
A successful outcome in U.S.-Korea tariff negotiations could pave the way for a rebound in export-oriented manufacturing companies like Samsung Electronics, automotive manufacturers, and battery producers. Samsung Electronics, in particular, holds significant sway over the KOSPI. Its weighting in the KOSPI's market capitalization, which stood at a substantial 23.7% just before the index first crossed 3,000 on January 7, 2021, has since decreased to 14.2%. A rebound in Samsung Electronics' stock price is therefore widely expected to contribute to further overall index gains.
Hwang Se-woon, a research fellow at the Korea Capital Market Institute, stressed that "for the current momentum to continue, policy support for improving corporate governance and strengthening shareholder returns by the government is essential." He added, "Encouraging the inflow of individual retirement pensions into the domestic stock market would also be a positive direction for supply and demand."
However, some voices caution that without accompanying improvements in corporate and economic fundamentals, the rapid stock market surge may have limitations. Jung Yong-taek, a senior researcher at IBK Investment & Securities, warned, "If the stock market rises purely on expectations in a situation where uncertainties like U.S. tariff policies and Korea's low economic growth rate persist, the upward trend may be difficult to sustain." He concluded, "The effects of the supplementary budget must be reflected in economic indicators, and the results of corporate value enhancement policies must become visible for investor momentum to continue."
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