Seoul Stocks Surge Past 3500 on Governance Reforms, Tax Expectations, and Global Liquidity
Seoul’s KOSPI index has climbed past 3500, fueled by a combination of anticipated tax reforms, revisions to the Commercial Law strengthening shareholder rights, and expectations of lowered US interest rates boosting global liquidity. The index’s rapid ascent from 2290 on April 9th to surpassing 3000 by June 20th reflects a shift in investor sentiment driven by these factors.
The recent revisions to the Commercial law, expanding director obligations to shareholders and mandating intensive voting, are seen as a key “Korea discount” factor. These changes aim to protect investor interests by addressing infringements on shareholder rights and shifting power away from dominant shareholders. Following the passage of the first Commercial Law amendment in July, the securities market experienced a net buying surge of 6.3 trillion won, with foreign investors contributing 1.381 trillion won – the highest level since June 13 of the previous year.
Kiwoom Securities researcher han Ji-young attributed the KOSPI’s positive trajectory to the expectation of tax reform. Governance Forum Chairman Lee Nam-woo noted a past lack of legal shareholder protection in Korea, with boards often favoring controlling shareholders, but believes the current reforms are creating positive momentum.
Further bolstering the market are expectations of interest rate cuts from the US Federal Reserve, which are anticipated to increase worldwide liquidity and drive asset prices higher.Both the US and Japanese stock markets have recently recorded their highest closing prices.However, analysts caution against assuming continued gains. Hanyang University Professor lee Jung-hwan emphasized that the recent rise is largely based on expectations rather than concrete performance. Potential headwinds include a continued US economic downturn or a reversal of anticipated interest rate cuts.
IM Securities researcher Lee Woong-chan warned that a weakening US economy, signaled by potential Fed action, could negatively impact the market if US employment indicators worsen.