Economic Expectations and Policy Directions Following the South Korean Presidential Election

List of Key Chapter Titles

1. Economic and Financial Market Outlook Following the 2025 Election Results
2. Bond Market: Rising Possibility of Higher Government Bond Yields
3. Analysis of Korean Stock Market Trends Around Past Presidential Elections
4. Sector Outlook Based on Election Pledges
5. Summary of Major Beneficiary Sectors Based on 10 Core Pledges
6. FX: The Korean Won Expected to Follow a Smooth Path
7. Bond Market Investor Concerns and Fiscal Soundness Issues
8. President-elect Lee Jae-myung's Economic Policy Registration and Focus Areas
9. Analysis of Overseas Case Studies and Impacts Based on the 4.5-Day Work Week Pledge
10. Analysis of Relative Returns and ETFs by Major Beneficiary Sector

Document Introduction

This report provides an in-depth analysis of the macroeconomic environment, financial market expectations, and potential policy directions following the early presidential election in South Korea in 2025 and the election of Lee Jae-myung, the candidate of the Democratic Party of Korea. The core of the report lies in assessing the potential policy mix and its market impact of the new government (under the Sixth Republic system, with an expected term from 2025 to 2030) as it faces the dual challenges of sluggish domestic economic growth (with the 2025 growth rate expected to fall into the 0% range) and drastic changes in the external trade environment (particularly policies under a potential second Trump administration). The research timeframe covers the period around the election and the subsequent years of policy implementation, aiming to provide professional investors and policy analysts with a deep assessment based on realistic political and economic scenarios.

The report structure systematically covers several key dimensions. First, at the macro level, it focuses on expansionary fiscal policies such as supplementary budgets (추경) that the new government may rapidly introduce to stimulate economic growth and restore people's livelihoods, as well as trade policy negotiations to address external risks (e.g., US-Korea tariff negotiations). Second, the financial market analysis emphasizes the bond market, anticipating that aggressive fiscal policies will push up government bond yields, especially long-term rates, and put pressure on the national debt ratio and fiscal soundness. Regarding the stock market, the report reviews historical market volatility patterns around elections, noting that major domestic events themselves have limited impact on market trends, while external events (such as the global financial crisis, the Russia-Ukraine war) and Korea's fundamental growth potential are more decisive. The report expects that large-scale supplementary budgets and value-up (밸류업) policies may bring different stock market momentum than in the past.

At the industrial and micro levels, the report details the core economic pledges of candidate Lee Jae-myung and assesses potential beneficiary sectors accordingly. These areas include: AI, software, and data center infrastructure promoted to build an "AI Top 3 Foundation"; the new energy industry involving integrated energy policies and expanded renewable energy (especially wind power); the construction and construction machinery sectors benefiting from the administrative capital relocation, expansion of rental housing, and investments in data centers and social infrastructure; the defense industry primarily supported by exports; and the financial sector, including holding companies, banks, and securities, drawing attention due to expected revisions to the Commercial Act and expanded shareholder returns. The report specifically uses the "4.5-day work week" pledge as an example, citing pilot cases from countries like Iceland and the UK, analyzing its potential positive effects (e.g., productivity increase, improved employee well-being) and practical limitations (industry differences, small sample issues, potential productivity decline risks), concluding that its implementation requires a gradual and cautious approach.

Finally, the report evaluates the foreign exchange market, arguing that regime changes have historically had a limited impact on the USD/KRW exchange rate. As a high-risk currency heavily dependent on the global trade environment, the won's exchange rate is primarily driven by external factors (such as uncertainty around US tariff policies). With the new government restoring administrative functions, normal diplomatic activities like tariff negotiations are expected to proceed more smoothly. Coupled with potential improvements in domestic growth expectations due to fiscal stimulus, the won's exchange rate in the second half of the year is projected to show a gradual downward trend with a floor around 1300 won. The report is based on multiple sources including data from the Korean Ministry of Economy and Finance, the Bank of Korea, Bloomberg, internal research models, and historical election data, striving to provide a comprehensive, objective, and forward-looking picture of the Korean political and economic landscape.