South Korea’s President Lee Jae Myung has presided over a historic surge in the country’s stock market, with the Kospi index more than doubling since his inauguration. This meteoric rise, however, belies the complex structural challenges that remain unresolved within the economy. While Lee’s early tenure has been celebrated for the stock market milestone, analysts caution that underlying reforms essential to long-term competitiveness are still pending, leaving South Korea at a pivotal juncture in an era defined by artificial intelligence, global trade tensions, and regional economic competition.
Before Lee’s election in June, he famously campaigned on a platform aiming to lift the Kospi to 5,000 within his five-year term. At the time, the benchmark index hovered below 2,500, making his pledge seem audacious, if not fanciful. Many economists doubted the feasibility of achieving such growth in less than a decade, given the sluggish pace of domestic reforms and lingering global economic uncertainties. Yet, Lee reached the milestone in just over five months, propelled by a worldwide boom in artificial intelligence.
The AI-driven rally has, in a sense, done much of the heavy lifting for Lee. Unlike his predecessors, who faced arduous battles to stimulate economic growth through domestic policy measures, Lee has benefited from a global tailwind that amplified Korea’s export-driven technology sector. His election promise to restore economic stability after a tumultuous period marked by domestic political upheaval and the lingering effects of US trade policies now seems to have been achieved, at least superficially, through external factors rather than deliberate domestic reform.
Thursday, February 19, is expected to bring closure to one of the more volatile chapters of recent South Korean politics: the verdict in former President Yoon Suk Yeol’s insurrection case. Yoon’s controversial imposition of martial law in December 2024 led to his impeachment and removal from office, shaking public confidence in the country’s institutions and raising concerns about political stability. For Lee, ensuring a smooth transition and stabilizing governance has been a central part of his early presidency.
Lee’s first major challenge upon taking office was restarting stalled economic reform processes. The six months preceding his presidency were characterized by legislative inertia, with little movement to streamline bureaucracy, deregulate labor markets, improve productivity, or level the playing field for startups. Similarly, regulatory volatility and weak corporate governance, which have contributed to the so-called “Korea discount,” remained largely unaddressed.
The Korea discount, a long-standing phenomenon, reflects the lower valuation of Korean corporations compared with peers in Japan or Taiwan, despite comparable profitability. Analysts argue that weak corporate governance, opaque ownership structures, and inconsistent shareholder protections have dampened investor confidence. “The Lee administration has proposed reforms to the Commercial Act that would introduce a fiduciary duty for corporate directors to shareholders and likely crack down on stock manipulation,” said Jeremy Chan, an analyst at Eurasia Group.
Additionally, Lee has floated proposals to increase dividend payments and encourage share buybacks to stimulate domestic equity investment. Yet, eight months into his tenure, no concrete reforms have been enacted, leaving the stock market surge largely unconnected to government action. Instead, it has been the rapid expansion of AI-driven sectors, notably semiconductors, that has propelled South Korea’s equities. Companies such as Samsung and SK Hynix have become global leaders in AI chip production, effectively shielding Korea’s economy from structural weaknesses and political uncertainty.
The Kospi, now trading above 5,500, owes little to legislative achievements and more to investor optimism. Lee’s administration has signaled support for innovation and high-tech investments, but tangible policy outcomes remain limited. Nonetheless, this early success has given Lee breathing room to plan and prioritize long-term economic strategies.
The artificial intelligence sector has played a pivotal role in Lee’s initial economic performance. In November, his administration unveiled a government budget focused on ushering in the “AI era.” “In the AI era, being a day late means falling behind an entire generation,” Lee stated, underscoring the urgency of rapid technological adoption. The government has allocated 10.1 trillion won (approximately US$7 billion) for AI investments, tripling expenditures compared with 2025.
Seoul has also announced the establishment of a National Growth Fund, aiming to invest $107 billion over the next five years in AI and other high-tech industries. This fund is intended to support a broad range of sectors, including semiconductors, automobiles, shipbuilding, and robotics, with the goal of integrating AI into South Korea’s industrial base. Analysts have highlighted this “physical AI” approach as critical for ensuring that technological progress translates into tangible economic gains, rather than being confined to software and service sectors.
Samsung and SK Hynix have been at the forefront of this transformation. By realigning production priorities toward AI chip manufacturing, these companies have become the backbone of Korea’s current stock market rally. JPMorgan Chase strategist Mixo Das has raised the bank’s “bull case” target for the Kospi to 7,500, citing growth potential in defense, shipbuilding, and high-tech sectors, alongside potential investor confidence gains if Lee successfully implements corporate governance reforms.
James Lee, head of global business at Must Asset Management, notes that “global attention on South Korea’s value‑up story isn’t fading anytime soon. For the market to truly level up, though, this concentration in Samsung and SK Hynix needs to spill over into the broader market and lift the rest of the sectors as well.”
The broader implications of this market performance are significant. Last week, South Korea’s stock market valuation surpassed $3.3 trillion, overtaking Germany as the world’s 10th largest equity market. The combined capitalization of Samsung and SK Hynix exceeds $1.1 trillion, surpassing the total market value of Chinese tech giants Alibaba Group and Tencent Holdings. This underscores Korea’s rising global profile in high-tech manufacturing and the strategic importance of AI-driven industrial transformation.
Despite the recent market success, structural challenges in Korea’s economy are deeply rooted. Over the past two decades, successive governments have promised bold reforms to enhance competitiveness but have consistently underdelivered. Since the Asian financial crisis of 1997-1998, leaders have attempted to curtail the dominance of family-owned conglomerates, or chaebols, and to create space for small- and medium-sized enterprises (SMEs) to flourish.
Yet, political realities and entrenched economic interests have often led to compromise. Leaders from Moon Jae-in to Park Geun-hye, Lee Myung-bak, and Roh Moo-hyun have all confronted the challenge of balancing reform ambitions with the power of the chaebols. The result has been incremental progress at best, often described as “a victory for stability over disruption.”
Yoon Suk Yeol’s presidency (2022-2025) was no exception. Initially promising sweeping deregulation and modernization, his administration struggled against bureaucratic inertia and elite opposition, leaving many of his initiatives unfinished. Lee now inherits the same structural bottlenecks, alongside a political environment still recovering from Yoon’s impeachment and the controversy surrounding martial law.
This pattern has created what some economists describe as a “reform dead zone,” in which political cycles, vested interests, and regulatory complexity slow down meaningful transformation. Korea continues to face the dual challenge of maintaining export-led growth while fostering innovation, productivity, and domestic consumption. Failure to address these issues could hinder long-term competitiveness, particularly as China, Taiwan, and other emerging Asian economies intensify industrial competition.
The regional backdrop further complicates Korea’s economic trajectory. Despite domestic challenges and a property sector crisis, China continues to expand its global market share in key industries, often at Korea’s expense. Korean companies, once the undisputed leaders in sectors such as electronics, automobiles, and shipbuilding, now face intense competition from Chinese firms and other emerging economies, including Vietnam and Indonesia.
Taiwan has consistently raised the bar for innovation, particularly in semiconductors, while Indonesia and Vietnam are increasingly producing technology “unicorns” that rival Korea’s startup ecosystem. For Korea to sustain high living standards and remain a global technological powerhouse, it must innovate aggressively, moving upmarket and expanding beyond a narrow concentration in semiconductors.
Historically, attempts to transition to higher-value industries have been slow. Moon Jae-in’s administration (2017-2022) and prior governments sought to diversify Korea’s industrial base, but chaebols maintained a monopolistic grip, constraining SMEs and stifling broader innovation. The challenge for Lee is to leverage Korea’s current AI-driven boom into sustainable, economy-wide transformation.
While the Kospi’s performance garners international attention, domestic socioeconomic pressures remain acute. South Korea’s 51 million citizens face stagnant real wage growth, sky-high household debt, and rising costs for housing, childcare, and education. These factors weigh heavily on consumer confidence and the quality of life for ordinary Koreans.
Lee’s administration must navigate the difficult balance between boosting stock market performance and addressing tangible living standards. Policies that prioritize high-tech growth and corporate profitability without improving daily life risk widening inequality and eroding public trust.
Furthermore, the ongoing implications of US trade policies pose additional uncertainties. The legacy of Donald Trump’s tariffs continues to affect Korea’s export-dependent economy, particularly in steel, automotive, and semiconductor sectors. Analysts warn that while the AI-driven rally is impressive, Korea’s economic resilience will ultimately depend on structural reforms that reduce vulnerability to external shocks.
One area where Lee could have a lasting impact is corporate governance. Korea’s chaebols have historically operated with opaque ownership structures, concentrated control, and weak shareholder protections. Improving transparency, fiduciary accountability, and regulatory consistency could unlock new domestic and international investment.
Jeremy Chan of Eurasia Group emphasizes that even the promise of reforms can influence market sentiment. If Lee successfully implements governance changes alongside broader AI and industrial investments, the Kospi’s rally could extend well beyond the current concentration in Samsung and SK Hynix.
The government’s 10.1 trillion won AI investment plan, combined with a National Growth Fund targeting $107 billion over five years, provides a financial platform for such initiatives. The challenge will be translating these funds into effective policy and market outcomes, rather than allowing growth to remain concentrated in a few megacap companies.
Political stability remains a double-edged sword. On one hand, stabilizing the post-Yoon political environment is critical for investor confidence and smooth governance. On the other, excessive focus on political consolidation can delay the bold, creative reforms needed to raise living standards and improve competitiveness.
Lee’s administration has demonstrated early success in calming markets and positioning Korea as a global AI hub. Yet, for long-term economic health, he must move beyond symbolic achievements and ensure that legislative, regulatory, and industrial reforms are enacted. Failure to do so risks repeating the cycle of underdelivered promises seen in previous administrations.
As Lee enters his second year in office, the clock is ticking. Investors, analysts, and the Korean public will be watching closely to see whether the AI-driven market surge can be leveraged into broad-based economic growth.
- Implementing Corporate Governance Reforms: Introducing fiduciary duties for directors, strengthening shareholder rights, and increasing transparency to reduce the Korea discount.
- Diversifying Industrial Growth: Ensuring that AI investments benefit a wide range of sectors beyond semiconductors, including shipbuilding, automotive, and robotics.
- Supporting SMEs and Startups: Reducing bureaucratic barriers and providing incentives for small companies to innovate and scale.
- Addressing Social Inequality: Tackling stagnant wages, household debt, and the rising cost of living to improve quality of life for ordinary citizens.
Navigating Global Trade Pressures: Preparing the economy for continued US-Korea trade friction and increasing competition from China, Taiwan, and emerging Asian markets.
Ultimately, Lee’s early stock market triumph highlights the potential for rapid gains in a globally connected, high-tech economy. Yet, Korea’s structural reforms—long promised but often delayed—remain crucial. How effectively Lee balances immediate market success with deeper, economy-wide reforms will define his legacy and determine whether South Korea can maintain its high living standards in the rapidly transforming global economy.
For now, the Kospi’s milestone provides political cover and public optimism, but it is merely the first chapter in a longer story. The real test will come as Lee moves from symbolic victories to concrete legislative and industrial reforms that strengthen competitiveness, improve corporate governance, and elevate the lives of everyday South Koreans.
In eight months, Lee Jae Myung has achieved a stock market triumph few anticipated. In the months and years ahead, he must translate that triumph into enduring economic resilience—a challenge that will test his political acumen, strategic vision, and ability to confront entrenched interests. The world is watching, and the stakes have never been higher.
