South Korea's Conservative Divide: A Political Crisis with Market Implications

The political drama unfolding in South Korea’s conservative camp ahead of the June 3 presidential election has escalated into a full-blown crisis, with nominee Kim Moon-soo accusing his own party of orchestrating a “forceful candidate replacement” to install former Prime Minister Han Duck-soo instead. This internal feud within the People Power Party (PPP) threatens to derail conservative unity, potentially handing the race to Democratic Party frontrunner Lee Jae-myung—a development that could reshape South Korea’s economic policies and market dynamics.

The Political Standoff
Kim’s camp has taken legal action to block a PPP convention scheduled for May 10–11, which could formally replace him with Han—a move his team calls a violation of the party’s primary process. Kim was chosen as the PPP’s official nominee on May 4 through a primary system, but party leaders argue unification with Han is necessary to avoid a conservative vote split against Lee, who leads with 53–54% in recent polls. Han, however, is not a PPP member, having served under ousted President Yoon Suk Yeol, and his lack of formal party backing has fueled accusations of procedural unfairness.

The PPP’s senior leadership, including floor leader Kweon Seong-dong, has escalated pressure on Kim, even starting a hunger strike to demand his resignation. Kim has refused, calling the push for unification a “forced process” and proposing an alternative plan: a one-week campaign for each candidate followed by a public opinion survey to decide the unified nominee. Party leaders dismissed this as a “pathetic” delaying tactic, leaving the situation at a boiling point as the May 11 candidate registration deadline approaches.

Market Implications
The political instability raises significant risks for investors, particularly in sectors tied to government policy. A Lee victory could mean continued focus on labor reforms and corporate governance, areas he has emphasized during his campaign. Meanwhile, a divided conservative vote might embolden Lee to pursue more aggressive economic agendas, such as expanding welfare programs or regulating tech giants like Samsung and Naver.

Historically, South Korean markets have been sensitive to political transitions. The KOSPI index fell 5% in the months following Yoon Suk Yeol’s impeachment in April 2025, reflecting uncertainty over the snap election. If the PPP’s infighting persists, further volatility is likely, especially if investors fear a prolonged period of political gridlock.

Sector-Specific Risks
The tech sector, including companies like Samsung Electronics (005930.KS) and SK Hynix (000660.KS), could face regulatory scrutiny under a Lee administration. Lee has criticized tech monopolies, aligning with Democratic Party policies that favor smaller businesses and labor rights. Conversely, a conservative win might prioritize corporate tax cuts and free-market reforms, which have historically boosted sectors like construction and automotive (e.g., Hyundai Motor (005380.KS)).

The financial sector, including KB Financial Group (138020.KS) and Shinhan Financial (055550.KS), may also see shifts in capital controls or banking regulations depending on the outcome. A Lee-led government could push for stricter oversight of financial institutions, while conservatives might favor deregulation to spur lending and investment.

Conclusion: A High-Stakes Gamble
The PPP’s internal crisis is a pivotal moment for South Korea’s political landscape and markets. With Lee Jae-myung holding a commanding lead, the conservative camp’s failure to unify could cement his victory—a scenario that would likely weigh on the KOSPI, given his pro-regulation stance.

Key data points underscore the urgency:
- Lee’s 53–54% support vs. Han’s 40% and Kim’s 38% (Gallup Korea, May 6) suggests a split conservative vote would hand Lee the presidency outright.
- The KOSPI has underperformed the MSCI World Index by 12% year-to-date, reflecting geopolitical and domestic political concerns.
- Past divided elections (e.g., 2017) saw market declines of 8–10% in the final months before voters chose candidates who promised policy continuity.

Investors should brace for heightened volatility until the PPP resolves its feud. A last-minute compromise could stabilize markets, but continued infighting risks a prolonged period of uncertainty—a scenario where defensive sectors like utilities (e.g., Korea Electric Power (018260.KS)) or consumer staples may outperform. For now, the ball is in the PPP’s court—and the clock is ticking.