South Korea’s New Era
As expected, the South Korean presidential election was won by Lee Jae-myung, the candidate from the Democratic Party, with a high vote rate of 49.4%. After taking office, Lee actively promoted tax law reforms, corporate governance, supplementary budgets, and introduced a series of new economic policies. His call for a “KOSPI 5,000-point” era successfully boosted market confidence, leading the South Korean Composite Stock Price Index (KOSPI) to break through the 2,900-point barrier, reaching a nearly three-year high. Consequently, the performance of related South Korean equity funds has also improved significantly!
Former South Korean President Yoon Suk-yeol unexpectedly declared martial law in December last year, triggering the most severe political crisis in South Korea since the 1980s. The South Korean National Assembly also passed an impeachment motion against Yoon, making him the third president in South Korea’s constitutional history to be impeached. The South Korean stock market fell by 9.6% throughout last year, ranking last among the Asia-Pacific markets. However, this year, the South Korean stock market has shown signs of a turnaround. As of June 12 this year, the Korea Composite Stock Price Index (KOSPI) has surged by 21.7%, leading all Asia-Pacific stock markets!
South Korea Economy Analysis and Outlook
South Korea’s economic performance remains somewhat unsatisfactory. Last year, the country’s economic growth was 2.0%, up from 1.4% the previous year. However, due to unexpected martial law and a series of political turmoil, there has been a comprehensive downturn in industrial production, exports, and consumption. Coupled with the external uncertainties from the United States’ high tariff policies, South Korea is facing an unprecedented “low growth shock” this year. In the first quarter, the economy contracted by 0.1%, significantly lower than the positive growth of 1.2% in the fourth quarter of last year and below market expectations. This marks the fourth consecutive quarter since the second quarter of last year that South Korea’s economic growth rate has been below 0.1%, indicating that the South Korean economy has been almost stagnant for the entire past year.
In the past, South Korean companies actively promoted investments in the United States, and with South Korean cars being very popular in the U.S., South Korea’s exports to the U.S. experienced rapid growth. However, recently, due to the impact of the tariffs imposed by the Trump administration, South Korea’s exports to the U.S. have sharply decreased. The “90-day exemption” from the Trump trade war also triggered a wave of cargo movement in Asia. According to the latest data from South Korea’s Ministry of Trade, Industry and Energy, South Korea’s total exports in April reached $58.21 billion, a year-on-year increase of 3.7%, which not only surpassed March’s 3.0% but also significantly exceeded market expectations. According to the latest data from the Korea Customs Service, from May 1 to May 10, out of a total export amount of approximately $12.8 billion, South Korea’s exports to the U.S. amounted to $2 billion, accounting for only 15.5%, while exports to China reached $2.8 billion, with the proportion rising to 21.8%. Whether this trend of “shifting from the U.S. to China” will continue in the future remains to be seen.
The economic performance has been difficult to recover, and the Bank of Korea (BOK) has significantly revised this year’s economic growth rate down from the original 1.5% to 0.8%. The growth rate for next year has also been adjusted down from 1.8% to 1.6%, marking the largest adjustment since the pandemic and falling below the OECD’s estimate of 1.5%, as well as the IMF and ADB’s estimate of 1%. In response, the Bank of Korea has also lowered the benchmark interest rate by 25 basis points to 2.5%, marking the fourth rate cut since the easing cycle began last October.
Governance Reforms to Boost Valuations
The South Korean stock market has surged this year, not due to improvements in its economic fundamentals, but primarily because of the new policies introduced by Lee Jae-myung after his election. Upon taking office, Lee announced plans to increase government spending, improve corporate governance, support economic growth, and enhance the market capitalization of the stock market, vowing to lead South Korean stocks into the “KOSPI 5,000-point” era. This boosted the morale of bulls, and global capital began to flow back into the South Korean stock market.
The South Korean economy has long been dominated by conglomerates, which have faced criticism for failing to protect the rights of minority shareholders. As a result, investors often value South Korean stocks at prices below their book value, and the stock prices of South Korean companies are significantly lower than those of similar foreign companies, leading to what is known as the “Korean discount.” One of Lee Jae-myung’s priorities is to amend commercial laws to eliminate rubber-stamp directors from corporate boards and expand the fiduciary duties of directors to shareholders.
Additionally, Lee pointed out that South Korean stocks have historically offered dividends far lower than those in other major countries in the world and the Asia-Pacific region. In the future, he plans to amend laws to incentivize domestic listed companies to increase dividend payouts, thereby enhancing the attractiveness of the domestic stock market, promoting consumption, and fostering economic growth, which would create a virtuous economic cycle. This approach is quite similar to that of the Japanese exchange. Furthermore, there will be efforts to strengthen corporate governance and regulation to eliminate stock manipulation and other unfair trading practices. Recently, global asset management firms such as Aberdeen Investment, Baird Wealth Management, and Franklin Templeton have gradually increased their holdings in South Korean stocks or upgraded their outlook for them. At the same time, the South Korean Ministry of Economy and Finance has initiated an internal assessment and plans to inject 20 trillion won (approximately 15 billion USD) through additional budgets to actively boost the weak domestic demand.
The National Democratic Dynamics Survey (NBS) recently announced that the approval rating of President Lee Jae-myung, who has just completed his first week in office, has risen to 53%, reflecting that over half of the public is satisfied with his governance. The Democratic Party of Korea has also secured a majority in the South Korean National Assembly, which is favorable for Lee Jae-myung’s complete governance. In the future, key tasks for the new government will include maintaining strategic flexibility in Korea-U.S.-Japan cooperation while reducing conflicts of interest with China, Russia, and North Korea; promoting economic development through investments in the AI industry and international cooperation; gradually adjusting welfare policies to narrow the wealth gap; reducing government intervention and advancing public institution reforms to maintain fiscal stability.
South Korea Funds Performance Analysis
According to Lipper statistics, there are currently three South Korean equity funds registered for sale in Taiwan. For the year-to-date, as of 2025/6/17, their average return rate has reached 25.2%, outperforming the South Korean KOSPI index. The average return rate over the past three months is 9.9%, and over the past six months, it has also reached an average of 20.9%. However, the average return over the past year is still a loss of 11.1%. The South Korean market has experienced significant volatility over the past year, and with the economy not yet effectively recovering, investors should not allocate too high a proportion of their investments.
Table 1: Equity South Korea Funds RFS Taiwan Performance
Source: LSEG Lipper, as of 2025/6/17, in TWD
