Can Korea still reach the 'Kospi 5000' era?

The author is an editorial writer at the JoongAng Ilbo.
The domestic stock market's "Black Friday" on Aug. 1 offered, paradoxically, the clearest illustration yet that the "Kospi 5000" era may remain out of reach. It felt like a prelude to the turbulence that unilateral taxation and legislative policies, pursued without regard for market sentiment, are bound to trigger.
Since President Lee Jae Myung took office, the Kospi had risen about 17 percent as of last month. The surge was driven by investor confidence in his pledge to usher in the "Kospi 5000 era," strengthen corporate governance so profits flow to shareholders and channel household wealth from property toward the equity market. His administration promoted this "money move" as a way to ease Korea's chronic real estate concentration. A Commercial Act revision mandating greater shareholder accountability despite resistance from business circles served as a symbolic down payment on that promise.

The honeymoon with equity investors, however, may be over. The breaking point came with the government's 2025 tax reform plan, which retail investors derisively labeled a "stock market martial law" package, announced on July 31. The plan lowered the threshold for major shareholder designation - triggering capital gains tax on stock sales - from 5 billion won to 1 billion won per listed issue. It also raised the top tax rate for separated dividend income to 35 percent, higher than the 20 percent initially floated in legislative drafts. Securities transaction taxes were also set to rise.
The measures sparked a fierce backlash. Investors warned that the familiar cycle of forced selling to avoid major shareholder status would once again depress share prices. Critics argued that the high threshold and steeper tax rate would blunt the intended effect of dividend income separation, offering little real incentive to the market.
The reaction was immediate. On Aug. 1 alone, 116 trillion won ($83.6 billion) in market capitalization evaporated. The government's expected revenue gains from the expanded capital gains tax, estimated at 2.3 trillion won, and the 200 billion won bump from transaction taxes looked negligible by comparison. Many investors accused the administration of effectively trading the 150,000 won in one-time household support payments for losses in the hundreds of thousands, or even millions, on their portfolios.
Most damaging of all was the blow to policy credibility. The constant shifting of the major shareholder threshold with each administration has already drawn scorn. Adding to the frustration was what investors described as a ping-pong game among ruling party lawmakers. Kim Byung-kee, acting Democratic Party leader and floor leader, signaled on Aug. 1 that the tax plan might be reconsidered amid the market rout. A day later, Policy Committee Chair Jin Sung-joon dismissed any retreat, insisting that the Lee administration's national agenda "goes beyond the Kospi 5000" and requires securing hundreds of trillions of won in fiscal resources.
Rushed lawmaking is nothing new in the National Assembly. Yet the spectacle of the party in power pushing through measures certain to provoke investor resistance, only to backpedal once the backlash was visible, reinforced perceptions of legislative recklessness. With a significant majority, the party may find it easy to amend laws on a whim, but investors are unlikely to commit capital to a market governed by volatility and eroding trust.
Another factor dampening market optimism is the administration's increasingly confrontational stance toward corporations. Stock prices are ultimately tethered to corporate earnings, and a series of policy headwinds now threatens those earnings. Facing lower corporate tax receipts last year due to sluggish profits, the government raised the corporate tax rate by one percentage point.
More aggressive legislation is queued up. The next Commercial Act revision and the contentious "Yellow Envelope La...