South Korea's Political Storm: How the Supreme Court Ruling Could Reshape Markets

The South Korean Supreme Court’s decision to overturn the acquittal of presidential frontrunner Lee Jae-myung has sent shockwaves through politics and markets alike. The ruling, which orders a retrial on election law violations, has thrown the June 3 presidential election into turmoil—and with it, the trajectory of South Korea’s economy. Here’s what investors need to know.

The Legal Backdrop: A Political Minefield

Lee Jae-myung, the liberal Democratic Party’s candidate, faces charges of making misleading statements during his 2021 mayoral campaign. A lower court initially convicted him, but an appeals court cleared him in March 2024. The Supreme Court’s abrupt reversal—just nine days after reviewing the case—suggests a political calculation to resolve the matter before the May 11 candidate registration deadline. If convicted, Lee would be barred from running, handing the election to conservative rivals like former Prime Minister Han Duck-soo.

The stakes are enormous. Lee leads polls with 38% support, while Han trails at 19%. A disqualification could deepen societal divisions, particularly after months of turmoil following the impeachment of conservative President Yoon Suk-yeol. The court’s expedited timeline has raised concerns about judicial politicization, but it also underscores the urgency of stabilizing the political environment for markets.

Market Implications: A Fragile Recovery

The KOSPI (Korea Composite Stock Price Index) fell 9.6% in 2024—the worst performance since the 2008 crisis—amid political instability and U.S. tariff threats. A key question now is whether resolving the election uncertainty can reverse this trend.

Scenario 1: Lee’s Survival
If Lee’s legal challenges are resolved in his favor by mid-May, markets could rally. Investors would likely welcome policy continuity, including Lee’s focus on social welfare and corporate governance reforms. Companies with global exposure, like Samsung Electronics (), would benefit from a weaker won boosting export competitiveness. However, Lee’s radical agenda—such as progressive tax reforms—might spook short-term investors until details emerge.

Scenario 2: Lee’s Disqualification
A guilty verdict would trigger a leadership vacuum, prolonging political uncertainty. The Democratic Party would scramble to nominate a replacement, while conservatives would gain momentum. This scenario risks further market selloffs, particularly in domestic sectors like retail and construction.

Sector-Specific Risks and Opportunities

• Technology & Semiconductors: Samsung Electronics and SK Hynix dominate the KOSPI. Both companies derive most revenue from overseas, but Samsung’s AI-driven high-bandwidth memory (HBM) business offers long-term growth. A weaker won could offset U.S. tariff impacts on components.
• Automotive: Kia Corp. reported record sales (3.09 million vehicles in 2024) but faces $140 million annual costs from U.S. steel tariffs. A weaker won (+7% decline in 2024) could help offset these costs, but geopolitical risks remain.
• Financials: Shinhan Financial Group’s 7% gain in 2024 reflects its overseas diversification and shareholder-friendly policies. Its “Value Up” program aims to boost dividends and buybacks, aligning with global investor preferences.

Geopolitical Crosscurrents: Tariffs and North Korea

U.S. President Donald Trump’s 25% tariffs on South Korean steel and aluminum, announced in April 2025, are a double-edged sword. Direct economic harm is minimal (steel accounts for <1% of exports to the U.S.), but broader tariff escalations could hit autos or semiconductors. Meanwhile, North Korea’s ongoing missile tests and potential Russian military tech transfers add volatility.

The Bottom Line: Time Is of the Essence

The Supreme Court’s ruling is a critical inflection point. If Lee survives politically, markets could rebound swiftly, leveraging a weaker won and global demand for tech and auto exports. The KOSPI’s historical precedent—no two-year decline since 1997—supports this optimism.

However, risks remain. A prolonged leadership battle, expanded U.S. tariffs, or North Korean provocations could derail recovery. Investors should prioritize companies with global exposure (e.g., Samsung, Shinhan) and avoid domestic plays until clarity emerges.

In short, May 2025 is a make-or-break month for South Korea’s markets. The Supreme Court’s ruling isn’t just about one politician—it’s about whether the nation can stabilize its political system and capitalize on its economic strengths before global headwinds intensify.

Final Take: The KOSPI trades at a 20% discount to its 10-year average P/E ratio, suggesting significant upside if political risks subside. Investors should lean into export champions and financials but remain cautious until the June election delivers a clear winner. This is a market poised to rebound—but only if South Korea’s political storm clears.