Seoul: Following Korea's presidential election, optimism surrounding the stock market has noticeably grown, particularly among overseas analysts. Mark Preskett, senior portfolio manager at Morningstar Wealth, projected an annual return of 11 to 12 percent for Korean equities in the next decade. JP Morgan even raised the possibility that the Kospi could reach 5,000 points within two years.
According to Yonhap News Agency, much of this renewed confidence stems from Korea's recent push to amend the Commercial Act and promote dividend tax reform. These efforts represent the most significant shift in Korea's securities regulation since the enactment of the Capital Market Promotion Act in 1973, which helped formalize private bond markets. For corporate leaders, the regulatory changes are not without concern. Yet by curbing controlling shareholders' overreach and enhancing investor protection, the revisions could help address the longstanding "Korea discount" that has kept valuations low.
The global economic outlook lends additional support. With the IMF forecasting growth of 2.8 percent this year and 3.0 percent next year, investors are increasingly inclined to shift assets into equities. Since stock prices tend to reflect expectations about the direction of the economy rather than its current level, this trend could provide upward momentum.
The new administration would do well to seize this moment. Stock market gains should be harnessed to stimulate domestic demand, expand household wealth, and ease corporate financing. But reforms in capital markets alone cannot drive sustainable growth. A more fundamental economic policy shift is required - one that acknowledges the pressures Korean companies now face, including from the recently revised Commercial Act and laws such as the "Yellow Envelope Law."
Germany under former Chancellor Gerhard Schr¶der offers a relevant example. From reunification in 1990 until 2003, Germany suffered from sluggish growth, high unemployment and unsustainable welfare spending. Despite being a center-left leader, Schr¶der launched the Hartz labor market reforms in 2002, which restricted unemployment benefits and penalized job refusal. The measures were deeply unpopular and cost him the next election. Nonetheless, the reforms revived the German economy, and Chancellor Angela Merkel later preserved them.