"Conditions for a major market shift are in place"…KOSPI jumps 3%

The KOSPI index recovered the 4,000 level a day after it fell on the 7th. This was due to the longest U.S. federal government shutdown entering the process of being lifted and the positive development that the top tax rate for separate taxation of dividend income is being lowered. Analysts say the revision of the tax proposal has created conditions that would allow steady inflows of foreign investor funds.

On the 10th, the KOSPI index closed up 3.02% at 4,073.24. Institutional investors swept up 1.3085 trillion won worth of securities on the Korea Exchange, strongly lifting the index.

The reason the KOSPI rose significantly compared with other Asian countries that day was the news that the top rate for separate taxation of dividend income would be lowered. As the government and the ruling party formed a consensus to cut the top rate of separate taxation on dividend income from the existing 35% to 25%, holding and financial stocks—considered representative high-dividend stocks—rose in unison.

That day the KRX Securities Index surged 6.32%, recording the highest gain among all indices. KB Financial rose as much as 7.11% intraday to 132,500 won, hitting a 52-week high. Holding company stocks such as SK (9.29%) and HD Hyundai (6.51%) also showed strong gains.

On the 8th, Jensen Huang, CEO of NVIDIA, mentioned that 'demand for wafers purchased from TSMC is increasing,' which led AI-related stocks to rise across the board. SK Hynix closed up 4.48% at 606,000 won, regaining the '600,000 Nix.'

Experts expect that if the top rate for separate taxation of dividend income is lowered, foreign funds will steadily flow into the domestic market. Because the domestic market rose rapidly, short-term volatility due to profit-taking could increase until year-end, but the conditions for a 'long-term upward trend' have been established. There had been persistent criticism that Korea's market valuation was discounted by about 30% compared with other emerging markets because of the low dividend payout ratios of domestic listed companies. From 2019 to 2023, Korea's average dividend payout ratio was 27.2%, significantly lower than the U.S. (42.7%) and Japan (36.7%). It has been pointed out that the heavy comprehensive tax burden gave major shareholders less incentive to increase dividends.

An official at an asset management firm said, "From a major shareholder's perspective, a situation has been created where increasing dividends and paying half the tax is far more advantageous than receiving high salaries and having taxes (top rate 49.5%) withheld." Kim Tae-hong, CEO of Growth Hill Asset Management, said, "If the separate tax rate on dividends is confirmed, the KOSPI index's price-earnings ratio (PER) band could sharply rise from the past 9–11 times to 12–15 times." Lee Geon-min, Chief Investment Officer (CIO) of BNK Asset Management, also said, "A very favorable situation has been created for the stock prices of companies that can receive the separate tax benefit," and "Since the foundation for a long-term upward trend in stock prices has been established, unless government policy changes drastically or corporate performance weakens, there is little practical benefit to selling now."

Shim Seong-mi/Jo Ara reporters smshim@hankyung.com