[Inside Chodong] Stock Prices Rise Only When Profits Grow

President Lee Jae Myung visited the Korea Exchange Integrated Control Center in Yeongdeungpo-gu, Seoul, on the 11th to receive a briefing on the stock market conditions and market surveillance system. Photo by Yonhap News

President Lee Jae Myung, who pledged to revitalize the stock market during the presidential election, recently visited the Korea Exchange. He promised to make the domestic stock market an investment vehicle on par with real estate. He also said he would consider a tax reform to encourage high dividends by lowering the dividend income tax burden for stocks with high payout ratios.

With the president personally taking an active role in supporting the stock market, more investors are beginning to anticipate a "KOSPI 5000." There are several reasons why the Korean stock market has been relatively undervalued. If the factors behind the so-called "Korea Discount" are resolved, the KOSPI could rise.

At this point, it is worth revisiting the "Dog Theory" of the world-renowned Hungarian investor Andre Kostolany. In the end, the dog (stock price) inevitably moves with its owner (corporate value). Even if the Commercial Act is revised and dividends are increased, if corporate profits do not grow, there is a limit to how much stock prices can rise.

Stock prices are proportional to the size of profits generated by companies. When a company increases its profits through innovative technology development, efficient productivity improvements, and successful market expansion strategies, its stock price naturally trends upward. This can be seen in the consistent growth in corporate value of Samyang Foods and Silicontwo since last year.

Samyang Foods saw its sales and operating profit in 2024 increase by 45% and 133%, respectively, compared to the previous year. As the popularity of Buldak Bokkeum Myeon soared overseas, profit growth accelerated further. In the first quarter, operating profit rose 67% year-on-year. The stock price jumped 453%, from 216,000 won at the end of 2023 to 1,196,000 won. Silicontwo, which played a significant role in elevating the global status of "K-beauty," saw its stock price rise 601% compared to the end of 2023. As with Samyang Foods, improved business performance was the driving force behind the stock price increase.

Investors also focus on the potential for future profit growth beyond current earnings. They invest in companies that are pioneering new industries or securing a competitive edge in overseas markets, and are expected to generate sustainable profits. Among KOSDAQ-listed companies, Alteogen, which has the largest market capitalization, is a prime example.

The goal of "KOSPI 5000" can only be realized when domestic listed companies strengthen their competitiveness in the global market and continuously discover new sources of profit.

The stock market is a mirror that reflects not only the performance of individual companies but also the broader macroeconomic trends. The average real GDP growth forecast presented by major international investment banks is below 1%.

As the era of artificial intelligence (AI) approaches, the competitiveness of Korean companies?except in a few industries?is weakening. Now is the time for the government to encourage corporate investment and innovation through consistent and predictable policies, and to propose practical measures to boost the potential growth rate.

Achieving KOSPI 5000 requires more than simply increasing liquidity; it will only be possible if the market receives a strong signal that "the Korean economy is entering a sustainable growth trajectory."

Simply revising various systems to revitalize the stock market is not enough. The government must present concrete strategies to enhance corporate competitiveness and drive economic growth. It should focus on creating an environment where companies can innovate and invest freely, and on elevating the status of Korean companies in the global market.