LEE’S 1ST YEAR IN OFFICE KOSPI heading toward 10,000: Fundamentals, policy fuel Korea’s market rally

Korea Exchange (KRX) CEO Jeong Eun-bo, front row center, holds a ceremony with employees commemorating KOSPI breaking the 8,000-point mark at the KRX building in Seoul, Tuesday. The benchmark index closed at 8,047.51, up 199.80 points, or 2.55 percent, from the previous session. Yonhap

Korean stocks have extended an unprecedented rally despite uncertainties stemming from the Middle East conflict, with the benchmark KOSPI soaring from the 2,000-point range to above 8,000 within a year of President Lee Jae Myung taking office.

KOSPI’s gains this year, the strongest among major G20 economies, have been driven largely by a global semiconductor supercycle fueled by rising artificial intelligence (AI) demand, which boosted earnings at Samsung Electronics and SK hynix, alongside the government’s market value-up and stock market revitalization policies.

KOSPI closed at 2,770.84 on June 4, 2025, the day Lee took office. Less than a year later, the index finished at 8,047.51 on Tuesday, surpassing the 8,000 mark on a closing basis for the first time after briefly topping the level intraday on May 15. The rally continued Wednesday, with KOSPI reaching 8,228.70, up 181.19 points, or 2.25 percent, and setting another closing high just a day after the previous milestone.

Data released by business tracker CEO Score on May 13 showed that the combined market capitalization of Korean listed firms surged to 7,088 trillion won ($4.68 trillion) as of May 11, marking a 172.9 percent jump from 2,597 trillion won recorded on June 2, 2025, just before Lee’s inauguration. This suggests the market added nearly 4,500 trillion won in value within just 11 months.

Samsung Electronics’ market capitalization climbed 396.4 percent over the period to 1,669 trillion won from 336 trillion won, while SK hynix posted a 787 percent surge to 1,339 trillion won from 151 trillion won. Together, the two companies accounted for 42.4 percent of total market capitalization, underscoring their growing dominance in the Korean stock market.

The Ministry of Finance and Economy also highlighted KOSPI’s sharp rise as one of the hallmark economic achievements of Lee’s first year in office.

“KOSPI, long criticized for its chronic undervaluation, has posted the strongest gains among major global bourses since the inauguration of this government,” First Vice Finance Minister Lee Hyoung-il said at a Cabinet meeting on May 20, adding that the domestic stock market had overcome the long-standing “Korea discount.”

The market’s remarkable rally has also been attributed to the government’s capital market reform drive, including corporate governance reforms and market value-up policies. The government rolled out a range of shareholder-friendly measures, including three rounds of amendments to the Commercial Act introduced between last July and this March.

The first revision expanded directors’ fiduciary duty to shareholders and renamed outside directors as independent directors. The second one barred listed firms with assets of more than 2 trillion won from opting out of cumulative voting and increased the minimum number of separately elected audit committee members to two. The third made treasury share cancellations mandatory.

The government also declared the introduction of a “one strike, you’re out” system for stock price manipulation and other unfair trading practices and launched a joint task force to combat stock manipulation, integrating investigation duties previously dispersed across the Financial Services Commission (FSC), Financial Supervisory Service (FSS) and Korea Exchange.

Additionally, by completely abolishing the cap on whistleblower rewards for stock manipulation, the government addressed criticisms that compensation was insufficient relative to the risks borne by whistleblowers.

During a forum in Seoul on May 20, Byun Je-ho, head of the FSC’s capital markets bureau, said, “Although the AI and semiconductor boom has supported the market, government policy effects have also been substantial.”

Byun noted that additional structural reforms are being pursued simultaneously, including initiatives aimed at streamlining delistings and addressing issues related to duplicate listings.

Samsung Electronics' semiconductor production line in Pyeongtaek, Gyeonggi Province / Courtesy of Samsung Electronics

Market polarization

Although Korean equities have been on a record-breaking run, the market still faces mounting structural concerns as the rally becomes increasingly dependent on semiconductor stocks, while worries over a global economic slowdown and persistent inflation continue to weigh on sentiment.

Market polarization is even more evident at the individual stock level. Data from the Korea Exchange showed that 2,429 of the 2,877 companies listed on KOSPI and Kosdaq — equivalent to 84 percent — either posted losses or traded flat as of May 19.

This means more than 8 out of 10 listed firms have effectively been left behind on the benchmark KOSPI’s ascent, due largely to overwhelming concentration in major semiconductor stocks.

This indicates that any downturn in semiconductors could quickly drag down the entire index.

“The profit divide between semiconductor companies and the rest of the market has become increasingly pronounced,” said Heo Jae-hwan, an analyst at Eugene Investment & Securities. “While earnings in non-chip sectors are showing some improvement, growth momentum outside semiconductors remains weak.”

He added, “Historically, rallies in large-cap stocks tended to spread later to small and medium-cap names, but this time the strength remains concentrated almost entirely on semiconductors.”

Another source of concern is the sharp rise in leveraged investing among retail traders.

As more individuals turn to overdraft accounts and margin financing to buy stocks, market watchers warn that KOSPI could become far more vulnerable to sudden swings triggered by relatively small external shocks.

Data from the Korea Financial Investment Association showed that outstanding margin loans tied to KOSPI trading climbed to 25.4 trillion won as of May 12, the highest level recorded this year.

Margin loans allow retail investors to borrow money from brokerage firms using deposits and securities as collateral to purchase stocks using leverage. During bullish markets, such borrowing can magnify returns by enabling investors to take positions that outpace their actual capital.

However, the same leverage can amplify losses when markets decline. In a downturn, investors must cope not only with falling share prices but also repayment obligations on borrowed funds, raising the risk of forced selling and heightened volatility.

Financial authorities have also raised the alarm over the steep rise in margin financing. Speaking at a briefing on May 11, Hwang Sun-oh, deputy governor of the FSS, said the agency is closely monitoring the rapid increase in outstanding margin trading loans.

“Since these investments rely on borrowed funds, a decline in stock prices can lead to forced sell-offs and significantly amplify investor losses. Investors need to manage their positions within a level of risk they can bear,” he said.

In response to the overheated market environment, the financial watchdog signaled tougher supervisory measures. It plans to intensify scrutiny of financial firms’ marketing activities encouraging leveraged or debt-based investing, while stepping up oversight of influencers suspected of distorting market conditions.

Still optimistic

Despite these concerns, many domestic and global brokerages remain optimistic about Korean equities, arguing that the semiconductor supercycle still has significant room to extend.

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While macro uncertainties such as U.S.-Iran ceasefire negotiations and related geopolitical tensions may fuel short-term swings, analysts broadly believe KOSPI’s longer-term upward trajectory remains intact.

Kim Dong-won, head of research at KB Securities, noted that AI data center operators and cloud service providers are increasingly seeking long-term agreements lasting three to five years to secure stable memory chip supplies.

“Such moves are likely to support additional increases in memory prices and strengthen the durability of the semiconductor upcycle,” he said.

Optimism over further KOSPI gains is also supported by valuation metrics. Han Ji-young, an analyst at Kiwoom Securities, said the benchmark index’s forward price-to-earnings ratio remains below 8-to-1, a level that has historically signaled attractive buying conditions.

“If current earnings expectations for KOSPI hold through year-end, applying the market’s historical average price-to-earnings ratio of 10 times makes the scenario in which the index surpasses 10,000 increasingly plausible,” Han said.

Major global investment banks have likewise upgraded their outlooks for Korean stocks.

Nomura Securities recently lifted its KOSPI target range for this year to 10,000-11,000 points. JPMorgan has also forecast the index reaching 10,000, while Morgan Stanley projected that KOSPI could climb to 8,500 during the first half and potentially reach 10,000 under a bullish scenario.