South Korea’s stock market, which initially benefited from expectations of U.S. interest rate cuts and China’s economic stimulus in the first half, plunged in the latter half due to setbacks such as Black Monday in August, Donald Trump’s U.S. presidential victory in November, and the martial law fallout in December. So far this year, 67% of stocks on the main Korea Composite Stock Price Index (KOSPI) and 80% on the KOSDAQ have declined, leaving investors who had hoped for the KOSPI to hit 3,000 at the start of the year with losses.
The recent market downturn, triggered by political upheaval surrounding the martial law, is subsiding as the National Assembly passed an impeachment motion against President Yoon Suk-yeol. However, it remains uncertain whether this will lead to a meaningful rebound.
According to the Korea Exchange on Dec. 16, 74.5% of the 2,607 listed companies (including suspended stocks) saw declines on Dec. 13, compared to the end of last year, marking a 20 percentage point increase from last year’s 50.4% (1,264 out of 2,510).
In the KOSPI market, 633 out of 946 stocks (67%) declined, 302 stocks rose, and 11 remained unchanged. The number of rising stocks was less than half the number of falling stocks. The KOSDAQ market fared worse, with 1,308 out of 1,661 stocks (79%) declining. Only 317 stocks gained, and 36 remained unchanged.
While some declines were driven by company-specific issues, the broader market was heavily affected by political and economic headwinds in the second half. Earlier in the year, expectations of a U.S. interest rate cut lifted the KOSPI from 2,655.28 to 2,891.35 by July 11. However, concerns over a U.S. economic slowdown, fears of unwinding yen carry trades, and Trump’s protectionist policies reversed the market’s momentum.
President Yoon’s martial law declaration crushed hopes for a year-end Santa Claus rally. The KOSPI plunged to 2,360.58 on Dec. 9, its lowest in 13 months, while the KOSDAQ fell to 627.01, revisiting levels not seen since the onset of the COVID-19 pandemic in April 2020.
Compared to other major stock markets, the Korean market has been hit harder by domestic and external risks, including slowing exports, the “Trump risk,” and political instability. Up until Dec. 13 this year, Taiwan’s TAIEX rose 28.4%, Japan’s Nikkei 225 gained 17.9%, and the U.S. Dow Jones climbed 16.3%.
While the political unrest surrounding President Yoon’s impeachment proceedings is starting to ease, experts predict a short-term market rebound, but not a lasting recovery. Kang Hyun-ki, an analyst at DB Financial Investment, said, “Korea’s export growth is slowing, and the suspension of the president’s duties has weakened the control tower for trade talks with the second Trump administration.” Kang predicts that the domestic stock market will likely see only a temporary rebound, rather than a sustained rise.
Hana Securities forecasts the KOSPI will recover to around 2,600, its level at the start of the year. Analyst Lee Jae-man said, “If the U.S. Federal Reserve signals a rate cut on Dec. 18, sectors with steep declines this year and strong earnings growth next year could see a rebound.”
