Lee Yeon-woo is a financial journalist at The Korea Times. Her wide range of reporting includes policies, macroeconomics, stock market, companies and even crypto. She is passionate about connecting the dots in Korean finance and making it easier for foreign nationals to understand. Based on her previous experience as a national reporter, she also has a keen interest in social issues within the sector, including gender equality and ESG. Your tips and insights are always appreciated. You can send them to yanu@koreatimes.co.kr.
INTERVIEW Why KOSPI volatility prolongs 'Korea discount'
Dealers work at Hana Bank headquarters in Seoul, March 3. Yonhap
By Lee Yeon-woo
Korea’s stock market scares off long-term investors, expert says
Peter S. Kim, global investment strategist at KB Financial Group
HONG KONG — When U.S. and Israeli forces launched massive airstrikes against Iran, Korean markets swung to extremes.
On March 3, the first trading day after the attack, the benchmark KOSPI tumbled 7.24 percent, tripping a sell-side circuit breaker. Losses deepened the following day, with the index down as much as 12 percent at one point — worse than the declines seen after the 9/11 attacks in 2001.
The rout quickly reversed. On March 5, KOSPI surged 9.63 percent, its biggest one-day gain on record, activating a buy-side circuit breaker.
Such swings contribute to the “Korea discount,” said Peter S. Kim, a global investment strategist at KB Financial Group, referring to the chronic undervaluation of Korean-listed companies.
Kim, who also serves as senior managing director and head of the global business and wholesale division at KB Securities, has over 30 years of experience in the industry. He has held leadership roles on both the buy and sell side, ranging from country CEO of HSBC Securities Korea to founding a pan-Asia hedge fund in Hong Kong.
Korea’s retail investors are known for high-risk, short-term trading and heavy use of leverage. Sidecars have been triggered nine times this year alone. In such an environment, hedging becomes difficult for institutional funds, Kim said, making the market behave more like an emerging one.
“Foreign investors find this baffling. How can an index in a market that isn’t even small swing 5 percent to 6 percent so casually?” Kim said in an interview at the Jefferies Asia Forum in Hong Kong. “Corporate governance is one reason, but an even more underappreciated factor is this kind of volatility.”
Kim said the situation raises a fundamental question: How should investors approach Korea, and how can they manage risk?
“In an environment like this, it borders on being unmanageable — so they leave.”
The market turbulence comes amid a broader rally driven by demand for artificial intelligence (AI) chips. Massive spending by hyperscalers has boosted orders for Samsung Electronics and SK hynix, continuing to lift their earnings.
KOSPI was one of the world’s best-performing major indexes in 2025, rising 75.89 percent from the end of 2024. It has gained a further 33.7 percent this year through Thursday. Despite ongoing fluctuations in the high-5,000 range, KB Securities projects the index will climb to 7,500 within the next two years.
But Kim warned that hot money has flooded into the market. Previously, inflows were more gradual and driven by fundamentals before investors pivoted to semiconductors last August. Since then, both retail and global investors have chased short-term gains.
“Korea needs more sticky money — long-term, stable capital,” he said.
Yeouido financial district in Seoul, December 2025 / Yonhap
The government set a “KOSPI 5,000” target last April and passed a raft of measures to overhaul corporate governance and bolster shareholder returns. It is now increasingly focused on shifting capital from real estate into the stock market.
Kim believes that a large, immediate rotation from property into equities is unlikely. Still, a gradual reallocation may follow if multi-home owners trim their holdings, with funds likely moving first into deposits and then into stocks if dividend yields become more compelling.
That leaves the onus increasingly on companies, Kim added. Banks are closest to meeting investor expectations on governance and returns, followed by domestic, consumption-driven sectors with strong cash flows.
“Korean manufacturers say they’re still in growth mode, unlike banks,” Kim said. “But that distinction isn’t as clear-cut as they suggest.”
Industry skepticism remains over whether governance reforms and higher payouts will deliver a sustained re-rating. Many firms still fall short of global standards for dividend-paying stocks, limiting their appeal to income-focused investors.
“One defining feature of global dividend-paying companies is their commitment to payouts,” Kim said. “Even when net income falls short, they are willing to draw on other assets to maintain dividends. In Korea, companies simply cut them.”
Reducing volatility will depend in part on attracting long-term capital. If Korea were seen as a developed market, global investors would step in during selloffs, Kim said. “But that foundation isn’t there yet.”
In that sense, he is skeptical of the government’s efforts to introduce leveraged exchange-traded funds and push secondary bourse Kosdaq toward 3,000, saying those moves encourage speculation.
“These are essentially invitations for hot money. It looks like an attempt to support the index in the short term rather than build durable fundamentals,” Kim said.
The bigger risk may emerge when the AI-driven rally fades, potentially obscuring progress in capital market improvements.
“Once that momentum slows, investors will ask what has really changed,” Kim said. “Some will say it’s the same cycle — foreign money comes in and leaves just as quickly. But the underlying reasons are different.”
The priority, Kim said, is to make the market consistently attractive by weeding out underperformers and rewarding high-quality companies, echoing reforms in Japan.
“If you improve tax incentives and market structure, capital will come naturally.”