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Investing.com -- South Korea’s equity market, weighed down by a prolonged summer correction, is expected to recover towards the end of the year as policy reforms and a stronger won help restore momentum.
The Kospi has been under pressure for two months amid dollar strength and uncertainty over domestic tax rules, raising concerns of another bearish spell in the second half.
Analysts see two potential drivers for a rebound, an appreciating Korean won and government initiatives to normalise the stock market.
The won, which has hovered near ₩1,400 against the dollar, could strengthen if the US Federal Reserve moves towards monetary easing later this year.
Outcomes from the APEC summit, including possible progress in US-China relations and a lifting of Beijing’s ban on Korean cultural exports, as well as developments in Russia-Ukraine ceasefire talks, could also support sentiment.
On the policy side, the government is advancing a bill to allow separate taxation of dividend income, with the framework likely to be finalised in early October.
The measure, which lowers tax rates for certain high-dividend firms, is seen as a market-friendly shift. Meanwhile, a controversial proposal to lower the capital gains tax threshold for large shareholders appears to have lost traction under the current administration.
The dividend taxation bill, it added, could be passed by late this year or early next year, giving investors greater clarity.
While global risks remain, particularly US monetary policy and geopolitical tensions, analysts believe the combination of currency strength and domestic reforms could set the stage for a year-end rally in Korean equities.