🚨 Lee Jae-myung Government Launch Honeymoon Rally: KOSPI Breaks 2800, Corporate Law Reform Expectations Rise
Today Korean Economic News | 2025.06.07
📌 KOSPI breaks 2800 level just 2 days after new government launch, driven by foreign buying and reform expectations
💬 A 'honeymoon rally' is happening in Korean stock markets right after President Lee Jae-myung took office. The KOSPI index has risen for two days in a row and broke through the 2800 level. Foreign investors are buying Korean stocks more actively. Expectations for corporate law reforms and better corporate governance are pushing stock prices higher. The new government's business-friendly policies and economic reform plans are making investors more optimistic. Market experts think this upward trend will continue in the short term, but they say real policy results must come out for sustainable growth to continue.
1️⃣ Easy Explanation
The stock market is rising sharply right after the new president took office. This is called a 'honeymoon rally' - just like newlyweds going on a sweet honeymoon trip, stocks go up because of high expectations for the new government.
When the KOSPI index goes over 2800, it means the average prices of Korea's top companies have risen a lot. The number 2800 itself isn't as important as the upward trend, which shows that investors feel positive about the new government.
The most important thing to notice is that foreign investors are buying many Korean stocks. Foreign investors usually make cold, calculated investment decisions. When they buy Korean stocks, it means they have high expectations for the new government's policies.
You'll often hear about 'corporate law reform.' This means changing laws to make companies give more benefits back to their shareholders. For example, when companies make good profits, they would pay higher dividends or make their management more transparent.
However, experts say this upward trend can only continue if good policies actually come out. Right now, stocks are rising because of 'expectations,' but if real results don't appear, stock prices might fall again.
This is good news for people who invest in stocks, but you should always be careful when investing. It's wise to watch how the new government's policies actually turn out before making decisions.
2️⃣ Economic Terms
📕 Honeymoon Rally
A honeymoon rally is when stock markets rise right after a new government starts.
- Like a sweet honeymoon trip for newlyweds, stocks go up because of high expectations for the new government.
- This usually lasts 3-6 months after a new government starts, and the strength depends on policy announcements and reform plans.
- But if real policy results don't show up, the upward trend can stop, so be careful.
📕 KOSPI
KOSPI is an index that combines stock prices of major companies listed on the Korean stock exchange.
- It stands for Korea Stock Price Index and shows the overall trend of Korea's stock market.
- Big companies like Samsung Electronics, SK Hynix, and Hyundai Motor have a big impact on this index.
- The number 2800 means it has risen 28 times compared to the starting point (January 4, 1980 = 100).
📕 Corporate Law Reform
Corporate law reform means changing laws about how companies operate and what rights shareholders have.
- This includes making companies pay more dividends to shareholders or making company management more transparent.
- The goal is to reduce companies' cash holdings and increase shareholder value.
- This is very important for foreign investors when they decide to invest in Korean companies.
📕 Foreign Investment Flow
Foreign investment flow means how much foreign investors buy and sell Korean stocks.
- When foreigners buy a lot of Korean stocks, we call it 'net buying.' When they sell a lot, it's 'net selling.'
- Foreign net buying pushes stock prices up, while net selling pushes them down.
- Foreign investors make up more than 30% of the Korean stock market, so their actions are very important.
3️⃣ How It Works and Economic Outlook
✅ How New Government Launch Affects Stock Markets
Let's analyze how political changes affect stock markets and why this happens.
First, expectations for the new government are making investors more willing to take risks. The Lee Jae-myung government emphasized business-friendly policies and economic reforms during the election. Promises like improving shareholder value through corporate law reform and supporting business activities through deregulation are being received positively by investors. The new government's economic team and policy direction match market expectations, improving investor sentiment. Foreign investors are especially sensitive to Korean government policy changes, so the new government's market-friendly approach is leading to foreign buying.
Second, expectations for political stability and consistent policies are increasing market confidence. The new government is gaining market trust by presenting a clear vision and roadmap for running the country. There's growing expectation that structural reforms and deregulation that were delayed under previous governments will be pushed forward faster under the new government. Political stability in the National Assembly is also seen as a driving force for policy implementation. This political stability is encouraging long-term investment capital to flow in.
Third, improvements in the global investment environment are creating synergy effects. As external conditions improve with the possible end of the US interest rate hike cycle and gradual recovery of the Chinese economy, Korea's political changes are acting as additional positive news. At a time when global investors are showing more interest in Asian emerging markets, Korea's new policy experiments are getting attention. The strengthening won and falling Korean government bond rates are also positive factors attracting foreign investment.
The honeymoon rally following the new government launch combines political expectations with economic fundamentals. However, for this upward trend to continue, actual policy results and economic indicator improvements must support it.
✅ Corporate Law Reform and Corporate Governance Improvement Effects
Let's look at the specific impacts corporate law reform will have on Korean companies and stock markets.
First, the core goal is to improve shareholder value by strengthening dividend policies. The new government is pushing policies to make companies return excess cash to shareholders. Currently, Korean companies' cash asset holdings are about 12% of GDP, which is high compared to other developed countries. Corporate law reform is considering introducing minimum dividend rates or making excess cash returns mandatory. This is expected to positively affect stock prices in IT, chemical, and financial sectors that hold a lot of cash. Improved dividend yields can greatly increase the attractiveness of Korean stocks for foreign investors.
Second, improving corporate governance transparency aims to solve the corporate value discount problem. Korean companies have long suffered from the 'Korea Discount' problem. This was caused by complex governance structures, low dividend rates, and insufficient protection of minority shareholder rights. The new government wants to solve this through strengthening outside director independence, improving shareholder meeting voting rights, and enhancing disclosure of related-party transactions. Eliminating circular shareholding structures of large business groups and promoting conversion to holding companies are also important tasks. If these improvements happen, Korean companies' valuations are expected to rise.
Third, activating stewardship codes and strengthening institutional investor roles are also being promoted. Policies are being strengthened to make large institutional investors like the National Pension Service and private school pension funds more actively involved in corporate management. This pressures companies to adopt shareholder-friendly policies. ESG (Environmental, Social, Governance) management is also being spread to encourage sustainable corporate value creation. While these changes might burden companies in the short term, they're expected to contribute to advancing Korean stock markets and improving global competitiveness in the long term.
Corporate law reform and governance improvement are key tasks for solving structural problems in Korean stock markets and building long-term growth foundations. If these reforms succeed, the Korea Discount will be eliminated and Korean stock markets' global status will greatly improve.
✅ Sustainability and Risk Factors of the Honeymoon Rally
Let's analyze how long the current upward trend can last and what factors to watch out for.
First, policy execution ability and visible results are key variables for continuing the rally. The current upward trend is mainly based on expectations, so investor evaluations might change as actual policies are announced and implemented. Corporate law reform especially needs to go through complex processes like National Assembly approval and enforcement decree preparation, which takes time. If policy implementation is slower than expected or content falls short of market expectations, disappointment selling might emerge. Therefore, the new government needs to present specific policy roadmaps quickly and show early results.
Second, changes in the external economic environment can affect the rally. External factors like US interest rate policy, Chinese economic conditions, and global inflation trends still greatly influence Korean stock markets. If higher-than-expected inflation appears in the US leading to continued interest rate hikes, or if Chinese economic recovery is delayed, foreign investors' sentiment toward emerging markets could worsen. Geopolitical risks and global supply chain problems can also act as market uncertainty factors. Therefore, external variables that can't be controlled by domestic policies alone must always be kept in mind.
Third, corporate performance and economic fundamental improvements must provide support. For stock price rises to continue, companies' actual profitability must improve. Korean companies are currently facing difficulties due to global economic slowdown and intensifying competition in Chinese markets. Whether the new government's policies actually lead to improved corporate performance will be an important judgment criterion. Korea's structural economic problems like low growth, aging population, and rising debt are also still challenges to solve. Securing medium to long-term growth momentum beyond short-term policy expectations will determine the rally's sustainability.
The honeymoon rally is a product of expectations for the new government, but its sustainability depends on actual policy results and economic improvements. Investors need to approach carefully from a medium to long-term perspective rather than short-term expectations.
4️⃣ Conclusion
The honeymoon rally that started with the Lee Jae-myung government launch reflects market expectations for new policies. The KOSPI breaking 2800 and expanding foreign buying are definitely positive signals, but several conditions must be met for this upward trend to lead to sustainable growth.
Above all, the corporate law reform and corporate governance improvements that the new government promised must actually happen. Korean companies' low dividend rates and complex governance structures have long been problems pointed out by foreign investors. If these structural problems are solved, the Korea Discount will be eliminated and Korean stock markets' global competitiveness will greatly improve.
However, a honeymoon rally is literally a 'honeymoon' period phenomenon. If expectations for policies don't lead to actual results, market disappointment can be just as big. Therefore, the new government needs to present specific policy roadmaps quickly and show visible results.
For investors, this is a time when opportunities and risks coexist. While they can gain short-term profits from expectations for the new government, risk factors like changes in external economic environments or delays in policy implementation also exist. Therefore, careful approaches are needed rather than blindly following trends.
Individual investors especially should be careful not to make excessive investments while intoxicated by the sweetness of the honeymoon rally. It's wise to follow basic investment principles of diversification and long-term investing while calmly watching the new government's policy results.
Ultimately, true stock market development comes not from temporary political expectations, but from companies' substantial value improvements and economic fundamental enhancements. We hope the honeymoon rally becomes a stepping stone for new leaps forward, leading Korean economy and stock markets toward more sound and sustainable growth.