Valuations have just reached a new high, but South Korean President Lee Jae-myung says "Korean stocks are still seriously undervalued," and that the "capital gains tax" issue should be decided by the National Assembly.

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Korean stocks just hit a new high, and the president "poured cold water" on it. Investors are angry: What happened to boosting the stock market?

On Wednesday, South Korea’s KOSPI index closed at 3314.53, setting a historic new high, surpassing the previous record set on July 6, 2021, and intraday once touched 3317.77.

As the stock market reached new highs, on Thursday, Korean President Lee Jae-myung said at a press conference that the previously controversial capital gains tax amendment proposal would be submitted to the National Assembly for a decision.

This ambiguous stance failed to meet investors’ expectations for the government to completely abandon the plan. After Lee Jae-myung's statement, the KOSPI erased its early 0.9% gain, narrowing to 0.2% as of press time.

The original proposal, put forward in late July, aimed to significantly lower the threshold for levying capital gains tax on individual shareholders from 5 billion won to 1 billion won, thus widening the tax scope. This proposal was met with strong resistance from South Korean retail investors at the time and caused a wave of sell-offs.

In his speech, Lee Jae-myung again emphasized the phenomenon of South Korea’s stock market being severely undervalued, saying that one of the reasons may be “insufficient demand.”

Since the beginning of this year, the KOSPI has risen by about 38%, making it one of the best-performing stock indices globally. Analysis points out that market enthusiasm mainly stems from the country’s ongoing corporate governance reforms and the boost from the global AI boom.

Lee Jae-myung: No need to lower the tax threshold, Korean stocks are still seriously undervalued

At the press conference, Lee Jae-myung admitted that the capital gains tax amendment proposal submitted in late July had triggered doubts in the market about the government’s commitment to reviving the stock market. He said:

"Some seem to see this as a test of whether there is a real commitment to the policy of revitalizing the stock market."

"If it causes damage to the stock market, there is no need to lower the threshold from 5 billion won to 1 billion won. I think it’s meaningless to keep insisting, and I will leave it to the National Assembly for review."

In fact, Korean retail investors often engage in massive selling before the end of each year to avoid the so-called "major shareholder" threshold, which analysts frequently cite as a factor causing downward pressure on the benchmark index.

The proposal was not directly cancelled, the market is disappointed

President Lee Jae-myung’s statements disappointed the market. Previously, investors generally expected the president to directly announce the withdrawal of the plan.

Eugene Investment & Securities strategist Huh Jae-Hwan said:

"The National Assembly is expected to scrap the plan, but the market is still disappointed as this means the decision will be further delayed."

"This move fails to end the key uncertainty that has been dragging down the stock market since late July."

Lee Jae-myung once promised during his campaign to usher in the era of “KOSPI 5000 points” to address the so-called “Korea Discount”, that is, Korean companies are undervalued compared with global peers due to factors such as lack of transparency in corporate governance and low dividend payouts.

Since Lee Jae-myung took office on June 4 this year, the market generally expected Lee Jae-myung to fulfill his campaign commitments, promote shareholder return reform legislation, and boost Korea’s economy. Since June 4, net inflows of foreign capital into the Korean stock market have reached 10.16 trillion won.

Risk Warning and DisclaimerThe market has risks, and investment needs to be cautious. This article does not constitute personal investment advice and does not consider the individual user’s specific investment objectives, financial situation or needs. Users should consider whether any opinions, views or conclusions in this article are suitable for their particular circumstances. Investment is at your own risk. ```