Will Kakao be biggest beneficiary of new government’s policies?

Kakao Pay CEO Shin Won-keun speaks during a press conference in Seoul, in this May 15, 2023 file photo. Yonhap

Kakao Pay's stock price surged sharply following the launch of the Lee Jae-myung administration, fueled by growing expectations for the introduction of a Korean won-based stablecoin, analysts said Tuesday.

Shares of other Kakao-related companies also rallied on optimism around President Lee's policy agenda, particularly the expansion of the artificial intelligence (AI) industry.

According to the Korea Exchange, Kakao Pay's stock price closed at 57,400 won ($42), Tuesday, up 15.96 percent from the previous trading day's close of 49,500 won. On Monday, the stock surged 29.92 percent.

The sharp rise reflects growing expectations that discussions surrounding the introduction of a won-based stablecoin will accelerate following the appointment of Kim Yong-beom, a former first vice finance minister, as the new presidential chief of staff for policy.

Stablecoins — digital assets pegged to real-world currencies such as the U.S. dollar — are designed to minimize price volatility. If a won-based stablecoin is officially introduced, it is expected to expand Korea's payments and settlement ecosystem. In such a scenario, Kakao Pay — given its strong presence in the domestic payments market — is anticipated to be a key beneficiary.

Since leaving public office in 2021, Kim has served as head of Hashed Open Research, a think tank affiliated with Hashed, Korea's leading blockchain-focused investment firm.

Kim Yong-beom, the new presidential chief of staff for policy, attends a press briefing at the presidential office, Friday, following the announcement of President Lee Jae-myung’s pick for his economic team. Yonhap

A policy proposal on the development of a won-based stablecoin, presented by Kim during his time at this think tank, is now drawing renewed attention and raising industry expectations.

In a report released late last month, Kim outlined a "Korean-style model" in which stablecoin issuance would be open not only to banks but also to private financial institutions and fintech companies.

KakaoBank, which surged 20.21 percent to close at 29,150 won on Monday, dropped Tuesday, ending the day down 2.74 percent at 28,350 won.

Yoon Yoo-dong, an analyst at NH Investment & Securities, said that expectations for stablecoin issuance, along with growing anticipation around the tokenized securities market, have boosted related stocks.

"As a leading fintech company in Korea, Kakao Pay is well-positioned to benefit from its integration within Kakao's broader ecosystem — which includes messaging, banking and brokerage platforms — enabling it to gain traction during the market's preparation and expansion phases," Yoon said.

Meanwhile, Kakao closed at 51,400 won on Monday, up 16.03 percent from the previous trading day. It marked the first time in over a year — since April 3 last year — that the stock surpassed the 50,000 won mark. On Tuesday, the stock dipped slightly, ending the session down 2.72 percent at 50,000 won.

Securities analysts have been raising their target prices for Kakao, citing expectations that the Lee administration will actively invest in AI technology. KB Securities raised its target price for the company from 49,000 won to 55,000 won.

Kakao is set to introduce a Korean-style super AI agent platform in the latter half of this year through a partnership with OpenAI.

"Kakao operates a vast ecosystem covering everything from the widely used KakaoTalk messenger to numerous daily life services," KB Securities analyst Lee Sun-hwa noted. "The launch of a Korean super AI agent platform that integrates OpenAI's advanced AI within this ecosystem is highly anticipated."

However, concerns about overheating also emerged.

JP Morgan stated in a report released Tuesday that it is premature to definitively classify Kakao Pay as a beneficiary of the won-based stablecoin policy, citing significant uncertainties.

The investment bank recommended reducing exposure to Kakao Pay, while maintaining neutral ratings on KakaoBank and Kakao.