South Korea’s stock market rebounds after political crisis and promises of reform

South Korean stocks had lagged last year, as global investors favoured Taiwan’s semiconductor industry and Yoon’s legislative instability stifled reform efforts. The failed push to reform South Korea’s National Assembly further dampened confidence and left the market weighed down by a persistent problem known as the “Korea discount.”

This refers to the chronic undervaluation of South Korean stocks, driven by weak shareholder protections and the dominance of powerful family-run conglomerates known as chaebols—such as Samsung, Hyundai, and LG—that often prioritize internal interests over investor returns.

Domestic investment drives market surge

In South Korea, around two-thirds of the Kospi index is owned by domestic investors, and roughly one-third of the voting population owns stocks directly. Unlike in the past, stock investment is now seen as a more sustainable wealth-building tool than real estate, which has become prohibitively expensive in Seoul.

“Making the stock market more attractive for shareholders, and perhaps long-term investment, is a way of channelling speculation, and making another way for Koreans to build equity,” said Ramage.

Promises of real reform spark global interest

Lee’s administration is viewed as more likely to push through reforms that his predecessor could not. He has pledged to double the value of the Kospi by strengthening shareholder rights, requiring directors to serve all investors, and incentivizing dividend payouts through tax changes. Unlike Yoon, Lee’s Democratic Party holds a majority in the National Assembly, giving him the legislative power to act.

Foreign investors have responded swiftly. Since Lee’s election, international funds have poured into South Korean equities, betting that long-standing valuation issues will be addressed.

“There’s a certain sense of excitement domestically, but also with foreign investors,” said Herald van der Linde, chief Asia equity strategist at HSBC. “The stars are aligned.”

Structural challenges remain

Still, not all hurdles have been cleared. U.S. tariffs on South Korean exports remain in place and could rise again as Trump’s trade war intensifies. Economic growth is expected to remain weak, and a stronger Korean won could hurt exports.

Perhaps most challenging are the structural reforms that investors believe are key to unlocking long-term value: dismantling the web of cross-holdings within chaebols that distort incentives and dilute shareholder control.

“If they really untangle these cross holdings, valuations would go up, that would do a lot for profitability,” said van der Linde. “But I think that is not easy, that will take years and years.”

A hopeful but cautious outlook

Despite the obstacles, South Korea’s market resurgence offers a rare bright spot in a turbulent global economy. With a government now in place that seems serious about reform, investors are watching closely to see whether Lee’s promises can translate into meaningful change.

As one of Asia’s most dynamic economies, South Korea’s ability to balance political reform, economic growth, and corporate restructuring could serve as a model—or a warning—for other markets caught between populism, globalization, and structural inertia.