President Lee: Stock Market Undervalued, Exchange Rate 'Temporary'

Amidst a significant plunge in the KOSPI index, President Lee Jae-myung asserted that South Korea's stock market remains undervalued. Speaking at his first-anniversary press conference on June 8, Lee acknowledged the market's sharp fall, which saw the KOSPI drop over 8% to 7484.41, breaking below the 8000 mark. However, he contrasted this with the index's level of 2700 prior to his term, emphasizing the substantial overall growth.

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The stock prices rose faster than expected. However, I still think they are slightly undervalued.

Lee attributed the recent stock market fluctuations, in part, to the strengthening won-dollar exchange rate. He explained that as foreign investment funds increased their holdings in South Korea, they needed to rebalance their portfolios. This rebalancing process, he noted, involves selling Korean assets and converting the proceeds to dollars, thereby increasing dollar demand and putting upward pressure on the exchange rate. Lee described the current won-dollar rate, which has hovered in the mid-1500s, as a temporary situation.

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The mid-1500s [won-dollar rate] is high, that's true. However, I see it as temporary.

He expressed confidence that as foreign investors complete their portfolio adjustments, the demand for dollars would decrease, easing the pressure on the exchange rate. The President also reiterated his stance on real estate policy, indicating that measures concerning property taxes, financial regulations, and housing supply would be finalized soon, with tax reforms expected in July. He specifically reaffirmed the need for stronger property holding taxes on ultra-high-value single homes, comparing them to luxury goods that should bear a higher tax burden, similar to practices in Western countries.

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When funds within investment funds suddenly increased their proportion of South Korean holdings, they had to sell to maintain their rebalancing ratios. When they sell and then convert won to dollars, demand increases. I believe this is the biggest factor in the short term.