The secret weapon behind South Korea's stock market "leading the world": When the president "used to be a retail investor"

Before making South Korea the hottest stock market in the world, Lee Jae-myung was just a thirty-something trading novice who suffered losses month after month. This painful experience of being a "cut leek" has now become the driving force behind the South Korean president's push for financial reform—he firmly believes that his losses at the time were repeatedly amplified by unfair transactions from controlling shareholders. Since taking office in June last year, Lee Jae-myung has implemented a series of radical reforms, including rules on equal shareholder rights and tighter board accountability. These measures ignited the largest stock rally in the world. On the 23rd, South Korea’s Seoul Composite Index surged another 2%, rising 36% this year, and since Lee Jae-myung took office, it has soared 115%, far exceeding the “Kospi 5000” target he set during his campaign. This rally has made Lee Jae-myung a "folk hero" among South Korea’s 14 million retail investors. According to Gallup Korea, his approval rating climbed to 63% in mid-February, a more than three-month high. Reform is also reshaping Koreans’ conception of wealth—real estate once accounted for nearly three-quarters of household assets, but KB Securities global investment strategist Peter S. Kim said, "The excessive concentration of real estate versus financial assets is about to reverse. This will be one of South Korea’s most profound trends in the next decade." But analysts attribute only part of the success to Lee Jae-myung’s reforms. Mixo Das, head of Korea equity strategy at JPMorgan, noted that the global AI boom has pushed up Korean tech stocks like Samsung Electronics and SK Hynix: "Reform is important and certainly helps valuation, but saying the Kospi surged to 5000 purely due to government policy may be an exaggeration." Many economists say more evidence is needed to prove the stock market rally genuinely fuels growth, otherwise, even within Lee’s own party, some worry that his obsession with the stock market could backfire. From Retail Losses to Determination for Reform Lee Jae-myung's early career was full of challenges. According to media citing an aide close to him, Lee realized early on that civil service pay was meager, and began trading stocks as a side job—but at first it did not go well. "I became an intraday trader, trading all day... Looking back, it was reckless," he recalled in an interview on the 3Pro TV YouTube channel, popular among retail investors. "I lost everything; I was completely wiped out." According to media reports citing several people close to Lee Jae-myung, what troubled him was not poor trading skills, but the repeated amplifier effect of unfair transactions by controlling shareholders, who enriched themselves at the expense of ordinary investors. Korean business regulations bind board members’ interests to those of major shareholders, not all shareholders, worsening this imbalance. Investors have cited several transactions as warnings, including the 2015 merger of two Samsung affiliate companies, despite Elliott Management’s warning that the low offer price would harm shareholder interests. In 2022, Lee Jae-myung ran for president for the first time as the Democratic Party candidate, with the slogan “Kospi 5000.” “I think Kospi 5000 is not hard,” he said on 3Pro TV’s YouTube channel. “If you believe in me, you should become more interested in the stock market.” He lost to Yoon Suk Yeol by the narrowest margin in Korea’s history, as voters were dissatisfied with the previous Democratic government’s failure to address housing and economic inequality. Reforms Surpassing Expectations Last June, Lee Jae-myung regained voter trust and became president with the promise of Kospi 5000. Investors were initially skeptical of his campaign; Namuh Rhee, chairman of the Korea Corporate Governance Forum, said that past reforms “never succeeded no matter which party was in power.” But within a month of taking office, Lee expanded the scope of fiduciary responsibility to enhance board accountability, then reformed dividend taxes to encourage payouts, increased enforcement resources to crack down on market violations, and announced a roadmap to join MSCI’s developed market status. “Every promise from previous governments has been disappointing, but this time is different,” Rhee added. Oh Gi Hyoung, a Democratic Party legislator leading the Kospi 5000 Special Committee (recently renamed the K Capital Market Committee), said, “The rally is much faster than we expected.” To demonstrate determination, Lee Jae-myung bought 40 million won (about $27,600) of domestic stock ETFs days before the June election and pledged to invest 1 million won every month for five years after being elected. By September, those investments had yielded 26.4%. Last year, the head of South Korea’s financial regulator also sold an apartment in Seoul’s wealthy Gangnam district and bought exchange-traded funds instead. Doubts and Challenges Persist Despite strong momentum, challenges remain. South Korea’s economy shrank in the fourth quarter, highlighting the difficulty for Lee Jae-myung’s government to turn things around. The lack of robust protection for minority shareholders and sluggish growth means many retail investors are still on the sidelines despite the rally, triggering capital outflow and a record surge into U.S. stocks, weakening the won. Democratic legislator Park Hong Bae commented, “Lee Jae-myung may believe that if we don’t act on deep mistrust in the capital market, we could eventually see all citizens investing in U.S. stocks.” Some within the party worry that Lee Jae-myung must prove he is raising prosperity for all Koreans—not just the rich—by addressing inequality. Korean households bear one of the world’s highest debt loads, and Lee himself calls this debt issue a “time bomb,” largely the result of surging apartment prices. Meanwhile, decades of export-driven growth have left the economy highly sensitive to global demand shocks, making the translation of stock market gains into wealth effects even more important. Last month, Lee Jae-myung stated in a cabinet meeting that the long-undervalued Korean capital market “is once again becoming a solid foundation for future innovative industry growth and healthy accumulation of national wealth.” The president’s office said in a statement to Bloomberg News that it is working to boost confidence in the stock market by curbing manipulation and promoting long-term investment. Next Steps The property market remains overheated, with regional disparities persisting despite repeated government efforts to curb speculation. However, a recent KB Financial Group report noted that high-net-worth individuals now prioritize allocation between domestic real estate and stocks similarly, a rare sign of rising market interest. In early February, Lee Jae-myung issued an unusually harsh warning to homeowners, calling this a “last chance” to sell excess houses before the government increases real estate taxes, and vowing to curb home prices “at any cost.” His government announced last month plans to speed up new home construction as part of supply-side reform. His next priorities include canceling treasury stock, eradicating illegal activities like insider trading, and delisting unprofitable zombie companies. Lee Jae-myung likes to remind everyone in public speeches that he was once a “big ant.” One day, when his political career finally ends, he will settle down and devote himself to stock trading once again. Risk Notice and Disclaimer The market involves risks; investment should be cautious. This article does not constitute personal investment advice and does not take into account the individual user’s specific investment objectives, financial situation, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article fit their specific situation. Investing based on this article is at your own risk.