South Korea’s Kospi index is poised to deliver its largest first-half gain in 26 years, buoyed by a combination of renewed investor confidence and political clarity. The benchmark index has surged 27% in the first half of 2025, rising from 2,399.49 at the end of 2024 to 3,055.94 as of last Friday, according to data from the Korea Exchange.
This marks the steepest first-half performance since 1999, when the Kospi soared 57% during the height of the dot-com rally. It also significantly outpaces the 5.4% increase recorded during the same period in 2024. Historic comparables include the 51% rise in the first half of 1987 and the 49% jump in 1986, both driven by favourable macroeconomic conditions such as a weak US dollar, low interest rates and declining oil prices.
The Kospi has continued to rally into the final trading session of the half. Provided the index does not decline by more than 2.95% today, it will secure its best start to a year since 1999. A sharper fall would still mark the strongest first-half gain since 2009, when markets rebounded from the global financial crisis with a 23.6% rise.
June has proven especially bullish, with the index gaining 13.2% in the month alone. The surge reflects optimism over newly elected President Lee Jae Myung’s market-friendly policy agenda. Pledging to revitalise capital markets and enhance corporate competitiveness, President Lee has set an ambitious goal of driving the Kospi to 5,000 points.
However, concerns over market overheating are becoming increasingly pronounced. As of last Thursday, 10 stocks were labelled as an “investment risk” – the highest warning level under the Korea Exchange’s surveillance framework – compared to six at the same time last year. Designations of “investment alert” rose 55% to 175, while “investment caution” warnings climbed 27% to 1,176. In June alone, 30 stocks were tagged “short-term overheated”, up sharply from 11 in March.
Analysts have cautioned that external pressures could further affect market dynamics. Washington recently extended a three-month grace period, until 9 July, on reciprocal tariffs targeting South Korean imports. This temporary reprieve is part of an effort to reach revised trade terms.
Lee Kyoung-min, analyst at Daishin Securities, noted that the index’s proximity to record highs could amplify sensitivity to geopolitical and trade-related developments. “With the Kospi nearing an all-time high, upcoming noise from tariffs and political events could increase pressure for profit-taking,” he said.
Lee Eun-taek, equity strategist at KB Securities, echoed similar concerns, warning that “tariff threats are highly likely to resurface, and while such risks are nothing new, the market is unlikely to remain unaffected – especially amid growing concerns over an economic slowdown”.
The index breached the 3,000-point mark on 20 June for the first time in nearly three and a half years, and swiftly crossed 3,100 the following session. It is now approaching its record high of 3,305, reached in July 2021.
Despite the mounting risks, market sentiment remains broadly positive. Many strategists anticipate further upside through the remainder of the year, particularly if corporate earnings momentum holds. Daishin Securities’ Lee Kyoung-min advised that in policy-driven sectors such as nuclear energy, finance and software, investors may benefit from waiting for a pullback. Conversely, undervalued sectors like semiconductors, autos and retail could offer opportunities amid ongoing capital rotation.
Noh Dong-kil, strategist at Shinhan Securities, projected the Kospi could reach 3,400 by year-end, citing a potential valuation re-rating. “After the liquidity rally, earnings will become the key variable,” he said. “There’s a risk that third-quarter results may fall short of expectations due to weakening external demand. Only structurally growing stocks with low sensitivity to the economic cycle will be able to break through.”
-ANN
