During the first three months of the year, economic activity in South Korea contracted (-0.2%) due to the political chaos that has prevailed since December 2024, which had notably caused Korean spending to falter.
The election of a new President put an end to the uncertainty and reassured economic actors. In the second quarter, GDP grew by 0.6% due to household consumption (+0.5%), a rebound in public spending (+1.2%), which had been frozen by the power vacuum in the first quarter, and a surge in exports (+4.2%).
Paradoxically, despite the trade war, South Korean sales abroad have increased sharply in recent months with the lifting of US restrictions on the sale of semiconductors to China, a key sector of the South Korean economy.
Promises to revive the Seoul Stock Exchange
The end of political anarchy and the economic rebound have not gone unnoticed by investors. With a gain of almost 40% since its low in early April, the Seoul Stock Exchange has outperformed other major stock exchanges worldwide.
In addition to the improving political and economic environment, the value of South Korean stocks, primarily held by local investors, has been boosted by the new President's promise to increase initiatives to revive the Seoul Stock Exchange, which has historically been penalised by weak shareholder rights.
Dependency on traditional families
Prominent South Korean companies are often controlled by founding families that do not prioritise good governance, which is reflected in the somewhat discounted price of South Korean stocks and the limited interest they generate among international investors.
This commendable presidential commitment, however, risks quickly colliding with the South Korean reality, where more than half of the GDP is generated by large companies tightly controlled by a few families whose support is essential for survival in the political arena.
Trade uncertainties and a weak economic outlook, with GDP growth expected to be close to 1% this year and in 2026, also risk quickly halting the Seoul stock market's spectacular rebound of recent months.
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