By Jihoon Lee and Youn Ah Moon
South Korean shares climbed on Wednesday to their highest levels in 10 months, as liberal presidential candidate Lee Jae-myung's election victory raised hopes of swift economic stimulus policies and market reforms.
The benchmark KOSPI KRX:KOSPI jumped 2.66% to 2,770.84, posting its biggest daily gain in nearly two months and closing at the highest level since August 1, 2024.
Lee officially took office as president on Wednesday, just hours after his victory in a snap election the previous day. His swift rise to power ends six months of political turmoil sparked by former President Yoon Suk Yeol's failed attempt to impose martial law in December - a move that stunned the country and rattled financial markets.
"The inauguration of the new administration resolved political uncertainty," said Kang Jin-hyeok, an analyst at Shinhan Securities.
"And, there are expectations that policy drives could be strong as Lee's Democratic Party holds a majority in parliament," Kang said.
Foreign investors snapped up local shares worth 1.05 trillion won ($766.60 million), marking their biggest single-day purchase since August 16, 2024.
Lee has pledged to bring corporate reform measures to boost the domestic stock market, raise investment in artificial intelligence, and revive an economy reeling from slowing growth with stimulus policies.
On capital markets, Lee has pledged to revive legislation within a few weeks to curb abuses by controlling shareholders of chaebol conglomerates, as part of his "KOSPI 5,000" pledge to double the value of the domestic stock market.
The revision to the Commercial Act is seen by market analysts as a fundamental change needed to resolve the so-called "Korea Discount", a tendency for local shares to be undervalued compared with global peers due to low dividend payouts and opaque corporate governance.
The securities sector (.KS53) was the top gainer, rising 8.1% to its highest level since August 2009, while financial groups (.KS49) jumped 6.5% to the highest point since May 2008.
Analysts anticipate that these sectors will be among the biggest beneficiaries of ongoing market reform efforts.
"We expect to see meaningful progress in capital market and governance reform post-election," Morgan Stanley's analysts said in a note, setting their KOSPI target for June 2026 at 2,800 for the base case and 3,100 for the bullish case.
Renewable energy stocks rallied on expectations of a reversal in energy policy away from nuclear energy, with Hanwha Solutions KRX:009830 climbing 5.7% and OCI KRX:456040 gaining 4.9%, while the construction sector (.KS44) rose nearly 3% on stimulus hopes.
With President Lee signaling a more conciliatory approach toward North Korea and China, stocks linked to North Korea, such as In The F KRX:014990 and Namkwang Engineering & Construction KRX:001260, as well as China-exposed sectors like beauty and entertainment, saw gains.
Among major heavyweights, chipmaker SK Hynix KRX:000660 gained 4.8%, while rival Samsung Electronics KRX:005930 rose 1.8%, further buoyed by overnight gains among U.S. peers.
"A combination of aggressive industrial policies and expansionary fiscal policies could lead to faster economic growth, at least in the short term," said Kim Jin-wook, an economist at Citi.
Lee announced plans to draft a second supplementary government budget of at least 30 trillion won to support the trade-reliant economy, which has been hit by U.S. tariffs and is projected to grow by just 0.8% this year. This follows a 13.8 trillion won supplementary budget passed in May.
The won strengthened 0.55% to 1,369.5 per dollar on the onshore settlement platform FX_IDC:USDKRW.
The country's treasury bond yields rose, with the benchmark 10-year yield TVC:KR10 gaining 9.3 basis points to 2.894%, the biggest jump since January 13.
($1 = 1,369.6800 won)