Goldman Sachs logo / Yonhap
By Lee Kyung-min
Korea is expected to face continued volatile trading conditions in the near term, hamstrung by potential downside risks to earnings and policy uncertainties both domestically and globally, Goldman Sachs said in a report, Wednesday.
However, Korean equities remain attractive, largely due to their overall low valuation. Also favorable is the opposition party-driven re-rating of Korea's stock market, as evidenced by the Corporate Value-up initiative and related bills. Recent waves of legislative efforts to revise the Capital Markets Act and the Commercial Act are expected to encourage more companies to make shareholder-friendly decisions.
Whether the recently heightened political uncertainty from the martial law fiasco will lead to wider volatility remains to be seen. For context, the impeachments of the country’s two former presidents – Roh Moo-hyun in 2004 and Park Geun-hye in 2016 – did not result in significant foreign capital outflows.
“The macro backdrop looks more challenging for Korea going into 2025,” the report said.
Chief among the headwinds are the global dominance of a strong U.S. dollar, high long-term interest rates, and tariff uncertainties. The Korean economy is expected to slow due to weakening growth in both exports and industrial production.
“Korea’s earnings downgrades cycle could persist given sustained weak export growth and declining DRAM prices. Thus, the fundamental backdrop looks unlikely to improve at the moment given potentially higher economic policy uncertainties. These assessments and our outlook have met with broad agreement in recent conversations with domestic investors."
Nonetheless, market conditions are improving, as indicated by bipartisan legislative efforts to strengthen shareholder rights and improve corporate governance, it added.
“We believe disclosure of treasury shareholdings and enhancing the fiduciary duty of board members will help balance the interests of ordinary shareholders and corporations.”
The report noted that equity market volatility increased in the lead-up to the impeachment votes of the two former presidents but rebounded afterward.
The KOSPI index rally continued after Park’s impeachment, propelling a gain of over 20 percent in the six months after the vote.
In the case of Roh, the benchmark index fell over 20 percent after an initial rebound.
“Neither impeachment event drove strong foreign outflows, although there were tactical outflows around the actual key event dates, such as the parliamentary vote and the constitutional court decisions.”
Beyond these market and portfolio flow observations, Korea’s impeachment process led to higher economic policy uncertainty.
“Both domestic policy uncertainty and the broader macro backdrop will likely influence market developments.”
English (United States) ·