Could KOSPI rally further on shareholder returns, property market curbs?
Brokerages lift KOSPI outlook, while reliance on chipmakers raises risks
The KOSPI is displayed at the dealing room of Hana Bank headquarters in Seoul, Friday. The benchmark index closed at 6,244.13, down 63.14 points, or 1 percent, from the previous session. Yonhap
How much further the KOSPI can advance is drawing increasing attention, as expectations for stronger shareholder returns following the passage of the third revision to the Commercial Act and the government’s tighter property rules push idle liquidity into equities, securities industry officials said Friday.
Driven by optimism over the amendment, Korea’s benchmark index repeatedly hit fresh record highs, surpassing the 6,000 mark for the first time on Wednesday. Gains extended into Thursday, with the index jumping 223.41 points, or 3.67 percent, to close at an all-time high of 6,307.27. It edged down on Friday to 6,244.13, falling 63.14 points, or 1 percent, from the previous session.
The third amendment to the Commercial Act cleared a plenary vote at the National Assembly on Wednesday, spearheaded by the ruling Democratic Party of Korea. The law requires treasury shares purchased after it takes effect to be retired within one year, while shares already held must be canceled within 18 months to ease the compliance burden.
Separately, President Lee Jae Myung has consistently underscored curbing speculative property purchases as a key policy objective, maintaining a hard-line stance that includes tighter lending restrictions.
Analysts say the Commercial Act revision could both lift earnings per share and trigger a broader rerating of corporate valuations. Together with expectations of stronger corporate fundamentals and supportive global liquidity, these factors are seen as sustaining the market’s upward momentum.
Jung Hae-chang and Lee Kyung-min, analysts at Daishin Securities, described the completion of the three-phase overhaul of the Commercial Act as tantamount to declaring an end to the Korea discount, which refers to the tendency for Korean stocks to trade at lower valuations than global peers.
They said the latest legislative step marks a structural turning point by addressing long-standing causes of undervaluation, including weak governance transparency and decision-making frameworks skewed toward controlling shareholders.
“The reform package goes beyond mandating treasury share retirements. By curbing practices such as deploying friendly investors and banning new share allotments during spin-offs, the changes effectively eliminate indirect ways for controlling shareholders to preserve influence using treasury stock,” they said in a report.
In their view, the revision realigns Korea with global norms, where share buybacks directly reduce shares outstanding and enhance per-share value.
“The passage of the amendment, coupled with broader governance reforms, is likely to reinforce expectations that the Korea discount will narrow, potentially serving as a catalyst for a valuation rerating of the KOSPI," Na Jung-hwan, an analyst at NH Investment & Securities, said.
In its “Korea Strategy: Still in a Sweet Spot” note, Morgan Stanley raised its end-2026 target for the KOSPI to 6,500 from 5,200, citing higher technology earnings projections and improving macroeconomic and policy conditions.
Domestic brokerages project the benchmark’s 2026 range at approximately 5,250 to 7,870.
However, the rally’s heavy reliance on a handful of large semiconductor names is seen as a potential vulnerability.
Excluding Samsung Electronics and SK hynix, the combined operating profit outlook for the remaining 187 listed companies has risen only about 2.05 percent this year — from 193.6 trillion won ($135 billion) at the end of last year to about 197.6 trillion won — underscoring the limited breadth of earnings growth.
Securities firms cite additional risks, including intensifying competition in artificial intelligence, the possibility of the U.S. Federal Reserve shifting away from an easing stance and rising geopolitical uncertainties ahead of the November U.S. midterm elections, along with lingering policy unpredictability associated with U.S. President Donald Trump.
Even so, most market watchers say it is premature to call a peak.
“The Korean equity market remains in an expansion phase rather than nearing the end of its cycle," Lee Jung-bin, an analyst at Shinhan Securities, said. "While volatility has increased in February, the key variable remains the direction of corporate earnings.”