South Korea’s stock markets are on a record-breaking rally, grabbing headlines in most major news media outlets and helping improve sentiment not only among stock investors but also among the general public toward the future. Higher stock prices are always welcome for various reasons, including the most direct and obvious positive effect on the cash flows of many households.

The local stock market’s benchmark Kospi jumped 1.73 percent to 3,610.6 on Friday, marking its second straight all-time high close after a whopping 2.70 percent gain on Oct. 2. The local market resumed trading on Friday after a weeklong break to mark three public holidays falling in succession, including Chuseok.

President Lee Jae Myung and the other leaders of his administration appear especially elated with the stock market’s rally. They more than deserve to be given the most credit for the rising stock prices because Lee has made taking the Kospi to 5,000 points one of his election pledges, and his party has indeed passed some important legislation intended to appease stock investors.

Looking back, the Kospi has risen by a total of 34 percent since Lee won the snap presidential election on June 3, marking one of the strongest rallies in history for any four-month period. It is also noteworthy that the market has been on a rally even in the face of domestic and global environments that are far from positive for the country’s economy over the short to medium term.

The most troubling issue is the still-delayed conclusion of negotiations with the Donald Trump administration after the leaders of the two countries announced a broad agreement in July. South Korea is one of the closest business, diplomatic and military partners of the US, and the follow-up agreement on tariffs and investment could have a severe impact not simply on South Korea’s economy but on the country’s future.

Moreover, the stock market’s rise took place even as the prospects for the country’s overall economic growth have changed little for the better despite the new administration’s introduction of a massive supplementary budget. In its interim outlook report, the Organization for Economic Cooperation and Development maintained its forecasts for South Korea’s 2025 and 2026 economic growth at 1.0 percent and 2.2 percent, respectively, even as it raised projections for many large economies.

In addition, the National Assembly Budget Office provided a grim outlook for the South Korean economy over the next several years in a report published at the end of September. It predicted that the local economy’s potential rate of growth — the growth of the economy’s productive capacity when all resources are fully and efficiently employed — would drop to an average of 1.8 percent for the next five years from 2.1 percent in the preceding five-year period.

After all, the story of the rallying stock market itself may be misleading when we look more closely at the situation. First of all, Kospi’s 34 percent rise over the past four months has largely been exaggerated by a surge in stock prices of a very limited number of companies — for instance, SK Hynix rose 106 percent during the period, while Samsung Electronics gained 66 percent.

Even if we broaden the categories, stock prices of the top 200 companies within Kospi rose 41 percent over the four-month period, whereas the remaining companies increased by a more moderate 13 percent, according to Korea Exchange’s data. In other words, Kospi’s rally has been widely distorted by unusually large gains posted by a select number of companies or clouded by persistent weakness lying under the surface.

Policymakers should not mistake the stock market’s rally for a relatively short period as evidence that their policies are actually producing the desired results. History has shown time and again that stock prices can soar for reasons that have little to do with the underlying health of an economy or the wisdom of government policy.

In this case, the ongoing rally may be more a reflection of the global surge in asset prices fueled by ample liquidity and aggressive monetary easing in major economies than a validation of the current administration’s economic strategies.

It is crucial to recognize that such liquidity-driven rallies are inherently fragile.

The Lee Jae Myung administration, therefore, should acknowledge that it has done little to nothing toward laying the foundation for addressing the structural weaknesses that continue to hamper South Korea’s economic vitality. Issues such as stagnant labor productivity, an aging population, declining competitiveness in certain industrial sectors and chronic underinvestment in future-oriented technologies have long been identified as key obstacles. Yet, the government’s attention has so far been disproportionately directed toward short-term stimulus and populist spending programs rather than tackling these deep-rooted challenges.

The administration must focus on long-term strategies, such as improving labor market flexibility, boosting research and development, and supporting small and medium-sized enterprises that form the backbone of innovation. Without structural reform, the temporary momentum seen in the stock market will not translate into sustainable economic strength or higher living standards for ordinary citizens.

Instead of chasing short-term approval ratings or market applause, the administration should dedicate its energy to crafting a coherent vision for inclusive, innovation-driven growth. That means fostering an environment where entrepreneurship is rewarded, regulatory burdens are streamlined, and social safety nets are modernized to keep pace with technological disruption.

In the end, genuine leadership will be measured not by how high the Kospi climbs in the next few months, but by whether the government can lay the groundwork for an economy that remains resilient, equitable and competitive for decades to come. The administration has a rare opportunity to turn early optimism into lasting progress — but it must first recognize that a rallying stock market is not the destination, only a fleeting reflection of global tides.

Yoo Choon-sik

Yoo Choon-sik worked for nearly 30 years at Reuters, including as the chief Korea economics correspondent, and briefly worked as a business strategy consultant. The views expressed here are the writer’s own. — Ed.

khnews@heraldcorp.com