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As corporate law revisions—touted by President Lee Jae-myung as key to achieving the “KOSPI 5000 era”—gain momentum, the Korean stock market is rallying in response. With expectations mounting for enhanced shareholder rights, governance reform, and more investor-friendly policies, foreign and institutional investors poured into the market. However, the business community remains cautious, citing possible negative side effects from the legal changes. Lawmakers are reportedly considering removing the controversial "3% rule," which limits the voting power of major shareholders.

On July 1, the benchmark KOSPI closed at 3,089.65. Although it has struggled to recover the 3,100 level since falling below it on June 26 amid concerns over tensions between Iran and Israel, investor sentiment has improved. The index touched 3,133.52 at 10:20 a.m., marking a new annual high and the strongest intraday performance since September 28, 2021, when it reached 3,134.46.

While optimism over a breakthrough in reciprocal tariff negotiations also buoyed markets—lifting major U.S. indices like the S&P 500 and Nasdaq to new records—analysts emphasized that hopes for the corporate law amendments were a major driver.

The ruling Democratic Party announced plans to present the amendment bill to the Legislation and Judiciary Committee on July 1 and push for passage during the ongoing June extraordinary session.

The core of the reform is to curb decisions by controlling shareholders that harm shareholder value and to establish stronger rights for minority shareholders. Key provisions include expanding the fiduciary duty of directors to include shareholders (not just the company), introducing virtual shareholder meetings for greater transparency, and strengthening mechanisms such as cumulative voting, mandatory independent directors, and separate election of audit committee members.

Holding companies led the market rally. HS Hyosung closed up 29.93% from the previous session. Other major gainers included Crown Haitai Holdings (21.19%), Hanwha (15.38%), Wonik Holdings (12.25%), Poongsan Holdings (12.10%), and Daesung Holdings (10.83%). Several companies—like SK, Harim Holdings, and the others listed—hit new 52-week highs.

Holding companies are considered prime beneficiaries of the reform due to their reliance on dividends from subsidiaries. Strengthened shareholder rights could lead to larger payouts, improving the financial health of parent firms.

In a note, Hana Securities' Global Investment Analysis Division said, “Expectations for the bill’s passage on July 4 are growing. Holding companies, which depend on subsidiary dividends, are gaining as shareholders’ rights are expected to be enhanced. Many are breaking past their 52-week highs.”

The anticipated improvements in governance and minority shareholder protections are further fueling optimism. Since the reform explicitly targets actions by controlling families that harm general shareholder interests, listed companies may be prevented from diluting value through moves like Hanwha Aerospace’s large capital increase or Taekwang Industrial’s issuance of exchangeable bonds to strengthen founder-family control.

Lee Nam-woo, head of the Korea Corporate Governance Forum, said, “The structural reason for general shareholders being undermined lies in the lack of fiduciary duty and boards subservient to controlling shareholders.” He added, “Requiring cumulative voting and expanding independent audit elections is crucial to restoring board independence and reforming capital markets.”

Nevertheless, the business community voiced concern over unintended consequences. Critics argue the reform could spur excessive litigation and invite intervention by activist funds and speculative capital. Korea’s six major business organizations have requested safeguards to minimize potential fallout.

Park Il-jun, executive vice president of the Korea Chamber of Commerce and Industry, said, “Issues like how to incorporate long-standing judicial principles for business decisions into the new fiduciary duty framework must be carefully considered.” He called on the government to “seek ways to minimize the side effects so that its ‘fair growth’ agenda can be effectively implemented.”