REPORTER’S NOTEBOOKKorea's stock market is missing 'long money'

The financial district of Yeouido in Seoul / Yonhap

Koreans were largely skeptical when President Lee Jae Myung took office last June with the goal of pushing the KOSPI from 2,000 to 5,000.

They had reason to be.

According to the Korea Corporate Governance Forum, a 100 million won ($70,691) investment in the U.S. stock market a decade earlier would have grown to 340 million won by 2024, including dividends and capital gains. The equivalent investment in Japan and Taiwan would have reached 280 million won and 260 million won, respectively, compared with just 160 million won in Korea.

It was a market that offered investors only "a little sense of reward," as Park Yoo-kyung, former managing director of emerging markets equities at APG Asset Management, once put it.

That dismal record helped explain the enthusiasm among global investors for Lee's efforts to improve corporate governance and shareholder returns, tackling the so-called "Korea discount."

Then came the artificial intelligence (AI) boom, with Korea's two semiconductor giants at the center.

The KOSPI surged 75.89 percent in 2025, the strongest performance among major markets. After breaking through Lee's 5,000 target on Jan. 23, the index hit a record high of 9,114.55 on June 22.

The euphoria did not last. Concerns that the semiconductor cycle had peaked and continued selling by foreign investors sent the index tumbling back towards 6,200 by mid-August, amid some of the most extreme volatility in the market's history, with intraday moves ranging from gains of 17 percent to losses of 9 percent.

That presents a whole new challenge for the market. Before efforts to attract stable, long-term capital could bear fruit, the global AI investment frenzy brought a wave of "fast money" into Korea, as investors went all in to chase short-term gains.

The government may have encouraged the trend by introducing single-stock leveraged exchange traded funds linked to Samsung Electronics and SK hynix. They are essentially "invitations for fast money," according to Peter S. Kim, global investment strategist at KB Financial Group.

He warned in March that heightened volatility was deterring long-term investors, potentially creating another version of the Korea discount policymakers were trying to eliminate.

Even as foreign selling began to reemerge since mid-June, foreign net purchases appear to have been driven largely by European and offshore hedge funds domiciled in jurisdictions including the Cayman Islands, France, Hong Kong and the British Virgin Islands, according to Jason Min-sang Kim, lead portfolio manager at Kyobo Life Insurance.

Rather than reflecting a structural reallocation by global asset managers, much of this capital appears to be seeking short-term arbitrage opportunities following the market sell-off. Such investors can quickly take profits once return targets are met, amplifying volatility, he added.

If the KOSPI is to sustain its re-rating without repeated bouts of volatility, Korea needs a deeper pool of long-term capital. Many Korean companies, including its two chip giants, still lag global peers on dividends and shareholder returns, limiting their appeal to income-focused investors.

Nomura said on July 29 that the next phase of Korea's re-rating would be driven by improving fundamentals, including share buybacks and cancellations of treasury shares, particularly among large-cap companies. It expects the KOSPI to trade between 10,000 and 11,000 by year-end.

But reaching another headline index target is less important than what kind of capital takes it there. The rally has demonstrated that Korean corporations can attract investors. The harder task is persuading them to stay.

For policymakers, that means putting the focus back where the rally began: improving the structure of the market.