South Korea has been through a lot recently.
Its president attempted to impose martial law in December, causing a period of political upheaval that culminated in his impeachment and removal from office. Then President Trump’s trade war took direct aim at South Korea’s export-heavy economy, especially its cars and electronics.
The stock market in Seoul, which is dominated by local investors, struggled under the weight of domestic and global politics.
But in the past few months, its fortunes have taken a turn. South Korea’s stock market is the best performing in Asia, by a wide margin, in the first half of 2025. The benchmark Kospi index, which includes stocks of the country’s entrenched industrial conglomerates as well as its tech start-ups, has risen 30 percent since the beginning of the year — more than other major indexes around the world.
In the United States, the S&P 500 index has jumped more than 20 percent since bottoming out in April, but is up only 6 percent this year.
Analysts attribute the rise of South Korea’s market mostly to the restoration of a unified government that has promised to pass investor-friendly reforms. Call it the Lee Jae Myung bump, after the head of state elected last month.
“The market is responding in Korea because there is a new president in place after the martial law declaration,” said Tom Ramage, an economic policy analyst with the Korea Economic Institute of America, a think tank backed by the South Korean government. “People were really looking for some kind of stability.”
Stocks in South Korea lost ground last year when investors gravitated toward Taiwan, in favor for its production of advanced semiconductors. And the botched takeover of the South Korean legislature, the National Assembly, didn’t just spook investors: It also dashed hopes for reforms that could fix a chronic problem with how South Korean companies are valued.
For decades, the country’s markets have been dogged by a phenomenon known as the “Korea discount.” South Korean companies trade at lower prices relative to their accounting value than similar businesses in other markets. The main reason is the weakness of shareholder rights in an economy dominated by sprawling corporations known as chaebols — like Samsung, LG and Hyundai — controlled by their founding families.
Stock returns aren’t always major election issues. But in South Korea, about two thirds of the Kospi index is owned domestically and about a third of voters own stocks directly, according to Goldman Sachs. Stock investing is also seen as a healthier way to build wealth than real estate, which has gotten so overheated in popular Seoul neighborhoods that many people despair of ever purchasing a home.
“Making the stock market more attractive for shareholders, and perhaps long-term investment, is a way of channeling speculation, and making another way for Koreans to build equity,” Mr. Ramage said.
The conservative People Power Party of former President Yoon Suk Yeol had tried to address the Korea discount with policies modeled loosely on changes that were credited with amping up stocks in Japan. The measures were largely voluntary, and investors were skeptical.
Mr. Yoon’s reforms also failed to persuade an influential advisory group to reclassify South Korea as a developed market, rather than an emerging market, which could have brought in tens of billions of dollars of additional foreign investment.
Mr. Lee also campaigned on fixing the undervaluation of South Korean stocks, promising to nearly double the Kospi. He favors changing financial regulations to require corporate directors to serve all shareholders, and making tax tweaks intended to encourage companies to dispense cash to investors through dividends.
Unlike Mr. Yoon, however, his Democratic Party has a majority in the National Assembly, potentially allowing him to implement those changes more easily. In the weeks following the election, international fund managers have turned their eyes to Seoul, piling into the market on the belief that the time could finally be ripe for reform.
“There’s a certain sense of excitement domestically, but also with foreign investors,” said Herald van der Linde, chief Asia equity strategist with HSBC. “The stars are aligned.”
There are other tailwinds for South Korean stocks. Despite projections of anemic economic growth this year and a run-up in the won that drags on exports, South Korea’s manufacturing sector appear to be stabilizing. Its companies make some products that are in high demand at the moment: small nuclear reactors, cargo ships and weapons systems.
But the landscape remains unpredictable. South Korean exports are still heavily burdened by U.S. tariffs, and another round could be in the offing.
And Mr. Lee’s financial reforms are still just promises, and the measures moving through the National Assembly are low-hanging fruit. Over the long term, investors are hoping for more fundamental changes to the structure of the chaebols, like weakening the complex linkages between companies that can create different incentives between management and shareholders.
“If they really untangle these cross holdings, valuations would go up, that would do a lot for profitability,” Mr. van der Linde said. “But I think that is not easy, that will take years and years.”
Lydia DePillis reports on the American economy. She has been a journalist since 2009, and can be reached at [email protected].
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