By one metric, Lee Jae Myung’s eight months as South Korean president have been a smashing success, with the stock market more than doubling on his watch.
Before Lee’s election in June, he ran on a Kospi 5,000 platform that struck many as fanciful. At that time, the benchmark was below 2,500.
Lee pledged to raise the index during his five-year term, and thanks to the global artificial intelligence boom, he achieved it in just over five months.
The AI trade made things a bit too easy for Lee’s administration. He was elected to restore calm to an economy wracked by domestic political turmoil and the US trade war.
Thursday (February 19) will bring some closure concerning the first issue. That’s when the verdict on the former President Yoon Suk Yeol’s insurrection case gets handed down. It stems from his controversial imposition of martial law in December 2024, a stunt that led to Yoon’s impeachment and removal from office.
Lee’s first job after taking office was to get the economic reform process back on track. The previous six months were a legislative dead zone. Zero happened to cut bureaucracy, loosen labor markets, increase productivity and level the playing fields so that startups can thrive.
Nor has there been any real progress in reducing the regulatory volatility and tightening corporate governance to end the so-called “Korea discount.”
This phenomenon has led Korean corporations to be valued lower than their peers in Japan or Taiwan. Lee’s administration “has proposed reforms to the Commercial Act that will introduce a fiduciary duty for corporate directors to shareholders and likely crack down on stock manipulation,” explains Jeremy Chan, an analyst at Eurasia Group.
“He has also proposed increasing dividend payments and share buybacks to boost investment in domestic equities,” Chan said.
Yet Lee has recorded no such reform victories. Even so, the Kospi is now trading above 5,500, though no actions on his part. Just the vague promise that with companies like Samsung producing semiconductors used by AI developers, all of Korea’s economic challenges are forgiven.
In a sense, Lee is getting off easy. The Kospi rally isn’t completely unearned. In November, Lee introduced his government’s first budget aimed at ushering in the “artificial intelligence era. He said that “in the AI era, being a day late means falling behind an entire generation.”
To avoid falling too far behind, Team Lee is spending 10.1 trillion won (US$7 billion) on AI investments — three times as much as in 2025. Seoul is also establishing a National Growth Fund to allocate approximately $107 billion to develop AI and other high-tech industries over the next five years.
The government is also supporting “physical AI” investments that are targeted at integrating AI into semiconductors, automobiles, shipbuilding, robotics and other key manufacturing sectors. And Samsung, by far Korea’s biggest company, is reorienting itself to better ride the AI wave.
JPMorgan Chase strategist Mixo Das has raised his bank’s “bull case” Kospi target to 7,500. Beyond chips, the drivers include defense and shipbuilding. There is also the potential that Lee’s push for corporate governance reforms could boost investor confidence, both domestically and internationally.
James Lee, head of global business at Must Asset Management, adds 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 South Korean stock market climbed to a valuation of over $3.3 trillion last week, overtaking Germany as the world’s 10th largest. The combined market capitalization of Samsung and SK Hynix has reached more than $1.1 trillion, surpassing the combined market capitalization of Chinese tech giants Alibaba Group and Tencent Holdings.
But the reform dead zone that predated Lee was really a multi-year one. Indeed, by some measures, it was a multi-decade one. Virtually all Korean governments over the last 20-plus years arrived with a burst of big reform plans — only to demur when they realized the scale of the job of raising competitiveness.
The glacial pace of vital upgrades now leaves Korea balancing the desire for disruption with strict regulations and innovation. An overlapping cacophony of compliance burdens, the need for “high impact” risk assessments and the process of “watermarking,” whereby digital content providers are embedded with a unique identifier.
Arguably, Yoon’s 2022-2025 presidency was the fifth in 20 years to overpromise and underdeliver major reforms to increase competitiveness and innovation.
He and his predecessors, Moon Jae-in, Park Geun-hye, Lee Myung-bak and Roh Moo-hyun pledged, to varying degrees, to deregulate and reduce the role of exports as the leading growth engine.
Each sought to curb the economic dominance of the family-owned conglomerates (chaebol) that tower over the economy, increase efficiency and boost average wages. Since the 1997-98 Asian crisis, a succession of governments set out to create more economic space for small- and medium-sized companies to thrive.
Once these leaders learned how strong the opposition from the status quo would be, each, like clockwork, pivoted to working with the chaebols, not wrestling economic power away from them.
It’s by now a well-established pattern: getting growth into the 3% range, declaring victory and then pivoting to other pursuits. This cycle has prevented the bold moves needed to disrupt an economic system that’s putting Korea at a disadvantage in the Chinese era.
The threat from China has grown in other ways, too. For all China’s troubles, including a deflation-generating property crisis, China Inc continues to grab global market share, often at Korea’s expense.
The backdrop is that Korea Inc knows that so much of what it does well has been commoditized. China and other rising Asian powers are now rivals in cars, electronics, robots, ships and popular entertainment.
Taiwan is constantly raising its innovative game, while upstarts like Indonesia and Vietnam are making the race for tech “unicorn” startups more dynamic.
The best way for Korea to maintain its high living standards is to innovate in ways that propel the economy upmarket even faster. That’s why Yoon and the three leaders who preceded him pledged an innovative “big bang” to move Korea upmarket into higher-value sectors.
During Moon Jae-in’s pre-Yoon tenure from 2017 to 2022, chaebols continued to monopolize the economic oxygen startups need to grow into large game-changers. That’s still Korea’s dilemma today as Lee grabs the baton.
In 2013, Park Geun-hye, Korea’s first female president, took office with bold talk of devising a more “creative” economy. Park ended up going easy on the chaebols.
Worse, she was impeached and removed after being co-opted by the chaebol establishment. Between 2008 and 2013, Lee came and went without fundamental changes to the chaebol system. The same for 2003-2008 leader Roh Moo-Hyun.
The Lee administration arrived in June, eager to establish Korea as a global financial hub, but with few notable reforms in the pipeline to achieve the goal.
That said, it’s still early days for Lee, who took office 260 days ago. But he must accelerate efforts to overhaul the economy’s mechanics as fallout from US President Donald Trump’s tariffs increasingly puts Korea in harm’s way.
As Trump’s trade war drags on, it’s unclear how Lee’s government will end the three-year low-growth “trap,” as some economists call it, now facing the country.
South Korea’s 51 million people are still experiencing, on average, stagnant real wage growth. Sky-high household debt remains a major drag on consumer confidence. So, too, is the uncertainty about where Trump’s trade war is headed.
Chatter about positioning Korea as a leading global semiconductor manufacturing hub is one thing. But improving life for the common person on the street struggling amid the surging costs of property, childcare and education is just as important.
Lee must overcome the perception that, post-Yoon, the political establishment is too preoccupied with score-settling to take legislative steps to raise South Korea’s financial game.
Political stability is one thing, but bold and creative moves to raise living standards are arguably just as important, if not more so, at this crucial juncture in the fast-transforming global economy. Lee is now firmly on the clock for following through on the reforms his various predecessors articulated but failed to accomplish.
Follow William Pesek on X at @WilliamPesek
