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South Korea’s benchmark Kospi has broken through the 5,000 level after rising almost 20 per cent this month, as semiconductor stocks soar and corporate governance reforms take hold.
The level reached on Thursday is a boost for President Lee Jae Myung, who had campaigned on the need for reforms to make investing more attractive and set a target for the index to hit 5,000 during his term.
The surge has been led by chipmakers Samsung Electronics and SK Hynix, beneficiaries of the AI-driven memory chip supercycle, which represent more than one-third of the Korean market. Samsung’s shares have nearly tripled in the past 12 months to Won154,700, while SK Hynix is up almost fourfold to Won766,000.
Corporate governance reforms also accounted for the market’s rise, said Jonathan Pines, head of Asia ex-Japan at US investment group Federated Hermes. “South Korea has addressed the main reasons for the so-called Korea discount,” Pines said.
“We believe the rally will continue because the market remains cheap,” he said. “Stocks are rising for good reasons and news flow remains positive.”
Last June, the president came to power promising to tackle poor corporate governance and the “Korea discount” that has typically suppressed valuations for the shares relative to other markets.
A July revision to Korea’s Commercial Act has made it a legal duty of directors to consider the interests of all shareholders rather than just the company, which, according to critics, often meant the interests of ruling family members of chaebols, the sprawling family-run conglomerates that dominate the economy. The government is also using tax incentives to encourage higher dividend payouts, which typically lag behind those of other markets.
The Lee administration is expected to announce measures to try to curb what it sees as the entrenched voting power of controlling families. The government argues the proposed cancellation of treasury stocks — shares hoarded by the companies — would increase minority shareholder power as well as earnings per share.
Lee began touting “Kospi 5,000” during his election campaign last year. “If we establish a fair and reasonable corporate governance mechanism and market order, our stock market will take a stunning leap forward,” he wrote on Facebook in April, when the Kospi was below 2,500.
Many Korean retail investors missed out on the rally. The “ants”, as the domestic investors refer to themselves, were in fact net sellers of domestic equities last year, according to the Korea Exchange.
Kim Keum-hee, a freelance photographer in Seoul, is one of a legion of Korean retail investors who favour US stocks, considering them less volatile than local ones. She and others regretted “not buying Korean stocks, especially individual stocks such as Samsung Electronics”, she said.
Yet Kim does not think the 5,000 milestone is significant. “Just because the Kospi breaks 5,000 doesn’t mean the Korean economy is booming,” she said.
The economy contracted 0.3 per cent in the fourth quarter on the previous quarter, the Bank of Korea said on Thursday. The economy grew 1 per cent on the same quarter a year earlier.
There was still room for the Kospi to increase further as valuations were still reasonable, said Han Ji-young, an analyst at Kiwoom Securities in a recent note.
Later this month, SK Hynix is expected to post fourth-quarter earnings with a “strong likelihood of outperforming expectations”, according to Ray Wang, an analyst at chip consultancy SemiAnalysis.
Hyundai Motor has also joined the rally, with shares almost doubling over the past month to Won587,000. Investors have become more confident in the company’s robotics business and autonomous-vehicle development.
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