South Korea's Presidential Race Turmoil: Implications for Investors

The South Korean presidential race, already polarized, has been thrown into chaos by a series of court rulings and resignations that threaten to upend the June 3 election. With frontrunner Lee Jae-myung facing a legal cloud over his candidacy and acting president Han Duck-soo’s abrupt exit, political instability has spiked—raising critical questions for investors. This article examines the risks and opportunities across sectors, supported by key economic data and market trends.

Political Turmoil: A Delicate Balance
The Supreme Court’s April 25 ruling to overturn Lee Jae-myung’s prior acquittal on election law violations has cast doubt on his eligibility. If convicted in a retrial, Lee could be barred from running—a scenario analysts estimate as a 50% probability. Compounding uncertainty, Han Duck-soo’s resignation to enter the race as a conservative candidate has introduced a wildcard. Polls now show a tighter race, with Lee’s lead narrowing to 34% (DP) vs. 19% (Han’s PPP coalition).

The election’s outcome hinges on judicial timelines and voter sentiment. A Lee victory would likely shift policy toward progressive social spending, while Han’s win could prioritize conservative alliances. Either scenario risks prolonged post-election legal battles, as Lee faces four additional charges (bribery, breach of duty) tied to land deals.

Economic Fallout: Growth Slows, Risks Rise
South Korea’s economy has already felt the pinch of political instability. The Bank of Korea projects GDP growth to drop to 1.6% in 2025, down from 2.2% in 2024. Consumer and business confidence indices have hit multi-year lows, with the CCSI (Composite Consumer Sentiment Index) at 93.4—a stark contrast to the neutral 100 threshold.

The KOSPI (Korea Composite Stock Price Index) has declined 9.6% since late 2024, with six consecutive monthly drops—the longest slump in 16 years. Sectors reliant on domestic demand, like retail and construction, face headwinds as fixed investment contracts and household debt remains at 90% of GDP.

Sector-Specific Risks and Opportunities
1. Technology & Semiconductors
- Samsung Electronics (005930.KS) and SK Hynix (000660.KS) dominate globally, but U.S. trade policies pose risks. While tariffs on semiconductors are not yet imposed, geopolitical tensions with China could disrupt supply chains. Fitch Ratings notes that SK Hynix’s leadership in AI-driven high-bandwidth memory (HBM) offers resilience.
- Investment Takeaway: Diversified global revenue streams (83% international for Samsung) provide a buffer, but monitor U.S.-China trade developments closely.

1. Automotive
2. Hyundai (005380.KS) and Kia (000270.KS) face U.S. tariffs on steel/aluminum (25% since April 2025), which add ~1.6% to Kia’s operating costs. A weaker won (down 2.5% vs. USD since December _2024) mitigates some impacts by lowering foreign currency revenue costs.

3. Risk Alert: Potential auto tariffs could hit 20% of exports (7% of GDP). Companies with U.S. manufacturing hubs (e.g., Kia’s Georgia plant) are less exposed.

4. Financial Services

5. Shinhan Financial Group (055550.KS) outperformed peers in 2024 (+7% stock gain) due to overseas earnings (Vietnam/Japan) and shareholder-friendly policies (buybacks, dividends). Its Value Up program compliance highlights resilience.

6. Opportunity: Firms with globalized operations and strong balance sheets may outperform during uncertainty.

7. Consumer Discretionary

8. F&F Co. (002220.KS) exemplifies the “bathwater effect”—its 30% stock decline in 2024 ignored strategic moves, like securing Discovery Channel brand rights in Asia. Its international expansion could recover if domestic demand stabilizes.
9. Caution: Weak local consumption and competitive pressures in China remain risks.

Geopolitical Risks and Trade Tensions
- U.S.-South Korea Relations: The Biden administration’s tariffs and demands for burden-sharing in defense costs strain the alliance. Hyundai’s $21 billion U.S. investment (including a Louisiana steel plant) aims to mitigate trade friction but underscores reliance on bilateral ties.
- China Exposure: South Korea’s exports to China fell 4.9% YoY early 2025. Companies with China-centric supply chains (e.g., automotive parts) face regulatory and currency risks.

Investment Outlook: Navigating the Crossroads
The June election’s outcome is a critical inflection point. A clear winner could stabilize markets, with the KOSPI rebounding if political risks subside. However, prolonged uncertainty or a fragmented government may deepen the GDP slowdown to 1.2% or lower.

Key Takeaways for Investors:
- Favor Sectors with Global Exposure: Tech (Samsung), automotive (Hyundai), and financials (Shinhan) offer resilience due to diversified revenue streams.
- Avoid Domestic Demand-Driven Plays: Retail and construction remain vulnerable to weak consumer sentiment and delayed policy reforms.
- Monitor Geopolitical Catalysts: Resolve U.S. tariffs and China trade dynamics to assess supply chain risks.

Conclusion
South Korea’s presidential race turmoil has created a high-risk, high-reward environment for investors. While political instability and trade tensions cloud the near term, sectors with global reach and strong fundamentals (e.g., semiconductors, financials) offer opportunities. Historical data underscores the market’s ability to rebound—KOSPI has not declined for two consecutive years since 1997. However, investors must remain selective, prioritizing firms with diversified supply chains and minimal exposure to domestic demand stagnation. The June election’s outcome will likely determine whether South Korea’s economy navigates this crossroads—or faces a prolonged downturn.

With the election less than a month away, the stakes are clear: political clarity is the key to unlocking investor confidence and reversing the KOSPI’s two-year decline. The next administration’s ability to address trade disputes, corporate debt, and geopolitical risks will define South Korea’s economic trajectory in 2025 and beyond.