On June 4, 2025, the first day of President Lee Jae-myung’s term, how did South Korea’s financial markets react?
1. Stocks
The KOSPI index closed at 2,770.84 points, up 2.66%, while the KOSDAQ index rose 1.34% to 750.21 points. As the six-month government transition period came to an end, optimism surrounding President Lee’s administration and its ambitious goal of reaching a 5,000-point KOSPI fueled positive market sentiment. Investors responded accordingly, with foreign and institutional investors leading the net buying activity, whereas retail investors opted for profit-taking through net selling.
The most heavily purchased stocks among foreign and institutional investors were SK Hynix and KODEX Leverage ETF. Institutional investors’ purchases of KOSPI leverage ETFs signaled confidence in further market gains.
Conversely, retail investors bought KODEX 200 Futures Inverse 2X ETFs, effectively betting on a stock market decline. This aligns with the common saying: "Buy on rumors, sell on news." With the new administration officially in place, some investors sought to realize gains from their existing holdings while positioning themselves for potential market downturns.
2. Exchange Rate
The KRW-USD exchange rate dropped by 10.5 KRW to 1,366.6 KRW. Optimism about the administration’s stock market stimulus policies and supplementary budget raised expectations for economic growth, strengthening the Korean won. However, the government’s debt-dependent stimulus approach could lead to long-term depreciation of the currency.
3. Bonds
South Korea’s bond yields climbed as concerns over increased government bond issuance weighed on the market. The 3-year bond yield rose by 7 basis points to 2.414%, while the 10-year bond yield increased by 9 basis points to 2.896%. Longer-term bonds experienced a more significant rate hike due to the likelihood of rising government debt. Given President Lee’s economic policy stance, long-term bond yields are expected to remain elevated for the foreseeable future.
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