The Korean securities market has hit a brake. Unlike major Asian countries' stock indices, which have reached record highs, the KOSPI index remains stagnant and has not surpassed the previous peak recorded in June 2021. This is interpreted as largely influenced by concerns regarding the policy implications following the first tax reform plan of the Lee Jae-myung administration.
According to the Korea Exchange on the 20th, the KOSPI index closed at 3151.56 the previous day. After rising to 3288.26 during trading on July 31, setting a new yearly high, it has been fluctuating between 3100 and 3200.
In contrast, the Nikkei 225 index in Japan rose to 43876.42 during trading the previous day, once again exceeding its all-time high. The Taiwan Weighted index also reached its highest point ever on the 18th, while both the Shanghai Composite Index and Shenzhen Composite Index are at their highest levels in the past decade. Concerns regarding the tariff policies of the Donald Trump administration, which shook the market, have subsided, leading to an upward rally.
The turning point for the KOSPI index and the major Asian stock indices is pointed out as July 15th. According to Lee Ung-chan from iM Securities, the KOSPI index has fallen about 65 points since July 15, with the contributions of Samsung Electronics and Samsung Electronics preferred stocks being roughly 45 points during the same period. This implies a decline of over 110 points when excluding Samsung Electronics.
July 15th was the day when the outlines of the first tax reform plan of the Lee Jae-myung administration were revealed. The plan to lower the threshold for the taxation of capital gains on stock disposals from 5 billion won per stock to 1 billion won was also announced at that time. This was reflected in the tax reform plan disclosed on July 31.
The separation taxation of dividend income included in the tax reform plan has been evaluated as failing to meet market expectations in terms of both the highest rate and conditions. The previously lowered securities transaction tax, based on the introduction of the financial investment income tax, has also been decided to be raised. Additionally, corporate taxes and education taxes in the financial sector will also be increased.
In the ruling camp, a second amendment bill to the Commercial Act, containing mandatory implementation of concentrated voting and the 'yellow envelope law' that limits damages for labor disputes, has been presented. In particular, although there have been concerns within the business community regarding the yellow envelope law, the Democratic Party of Korea has not changed its stance on processing it.
Policies that are far from the expectations of stimulating the capital market under the slogan 'the era of KOSPI 5000' are pouring out one after another from the Lee Jae-myung administration. An executive from a securities firm said, 'I would rather not have had any signals, but as they are trying to stimulate the market and move in the opposite direction, it's inevitable that they will waver more.'
Investor disappointment in the stock market is clearly reflected in the scale of transaction volume. In June, when the Lee Jae-myung administration was launched, the average daily trading volume in the KOSPI market was 15.1998 trillion won. In July, it decreased to 12.9598 trillion won, and so far this month, it has plummeted to 10.676 trillion won.
In particular, the enthusiasm of foreign investors, which had driven the domestic stock market upward, has cooled off. Foreigners made net purchases worth 2.6829 trillion won in the KOSPI market in June and showed a purchase advantage of 6.2669 trillion won in July. However, they have net sold 401 billion won so far this month.
With the policy momentum weakened, sectors that had previously led the stock market are also facing adverse conditions. As the U.S. expanded the range of derivative products subject to tariffs on steel and aluminum, the electrical machinery sector was affected, and the nuclear power sector declined sharply due to controversies over 'unfair contracts' between Korea Hydro & Nuclear Power and Westinghouse. As investment sentiment weakens, there is a trend to react sensitively to negative issues.
Han Ji-young, a researcher at Kiwoom Securities, stated, 'The leading stocks that have driven the KOSPI index have been plummeting this week, which has increased the perceived intensity of the index's decline.'
As the global stock market shifts back to a wait-and-see stance, it is expected that the domestic stock market will also struggle to rebound. Jeong Hae-chang of DAISHIN SECURITIES noted, 'Ahead of the Jackson Hole meeting, the global stock market is generally forming a sense of caution,' adding that 'there is attention on the proceedings of the ongoing U.S.-Ukraine-Russia tripartite talks.' He remarked, 'Both issues are significant, but it will take time to confirm the results,' and predicted that the wait-and-see sentiment in the stock market will prevail.