South Korea has a new leader as of Wednesday, instantly sworn in after the rapid departure of his impeached predecessor. The change comes with Korean stocks just off an all-time high.
Seoul's benchmark Kospi index fell 1% as trading resumed after a market holiday for voting. But stocks are up a solid 12% for the year, and that's despite the slow unfurling of the country's largest bribery scandal. Oh, and there's the little matter of North Korea, bristling with missiles across the border.
Should investors be concerned? They inevitably shake off geopolitical risks in Asia, where most countries are in some form of turmoil, most of the time. Whatever bluster we hear from Donald Trump and Kim Jong-un, they strangely seem to be kindred spirits, ones I very much doubt will ever come to blows.
The new presidency, regardless of who took office, is positive in the sense that it ends seven months of political uproar.
As expected, the liberal Moon Jae-in won, with 41.4% of votes. His victory marks the end of nine years of conservative rule in South Korea, a country that only really started to experience true democracy in the late 1980s after a series of military dictators.
Moon's two main competitors, one from the right and one a centrist, conceded defeat last night, although Moon was one of 19 candidates in all, coincidentally becoming the country's 19th president.
Although Moon is a liberal, in a country where that isn't a dirty word, he is also an outsider. A former human rights lawyer, he only entered politics five years ago.
One of the mainstays of his platform is a push to reform the mammoth chaebol conglomerates that dominate the Korean corporate culture. Moon wants to detach them from politics, where they have had extensive reach, as well as to push or force them toward better governance. Their founding families all too often run them as their own preserves.
Part of the stock rally stems from expectations that Moon will spend heavily. But, equally, corporate profits are good out of export-driven Korea. Its best-known brand, Samsung Electronics (SSNLF) , has even brought in shareholder-friendly moves such as the cancellation of all of its treasury shares. Those are worth more than 40 trillion won ($35 billion).
The decision may produce copycat moves at other Korean companies, which often have arcane shareholding structures designed to concentrate power at the top.
The Asia-focused brokerage CLSA notes that Samsung has accounted for more than 40% of the Kospi's gains this year. SK Hynix (HXSCL) has been another stellar performer. But there are signs the rally is spreading to non-tech sectors, which should mean the run is sustainable. CLSA is bullish on the Korean market, although since Moon's victory was widely forecast there's no sudden move.
Moon takes up residence in the Blue House after the hurried departure of former president Park Geun-hye, the country's first female leader, who is now warming a cell in the Seoul Detention Center as Inmate No. 503.
Park, whose father also led Korea, before his assassination in 1979, grew up in the presidential palace. But her downfall came as a result of an influence-peddling scandal in which many of South Korea's largest corporations paid millions in alleged bribes to charities overseen by Park's best friend, Choi Soon-sil. Choi held no office but apparently had very strong pull behind the scenes.
The expanding scandal threatens to ensnare many others. The acting leader of Samsung, Jay Y. Lee, is already on trial for allegedly funneling $37 million to Choi, with his colleagues. He claims the money was extorted. Park, Choi and Lee have denied all charges.
The impact of that case goes arguably further than the impeachment of the president -- Samsung and its affiliates represent Korea around the world as its best-known brand, and account for 15% of the country's entire economy. Prosecutors have also questioned executives from other chaebol including Hyundai Motor (HYMTF) , LG Display (LPL) and Lotte Holdings.
South Korea was shattered after the cessation of hostilities in the Korean War (although technically it is still at war with the North). The military that took political control worked hand-in-hand with Korea's corporations to reassemble the country, and then some -- Korea's recovery was just as remarkable as Japan's in the second half of last century.
So South Korean corporate culture is now effectively on trial, as I explained in early March when Lee first appeared in the dock.
It's been business as usual for top politicians and executives to be convicted of crimes such as tax evasion -- only then to receive a presidential pardon. This time round, things may be different. The president most likely to grant pardons is on trial herself, and her successor has pledged to take off the kid gloves when dealing with the chaebol.
Moon pledged in his midnight victory speech last night that he would create a "just, unified country" during his five years in charge. "I will be a president who also serves all the people who did not support me."
Turnout was high, approaching 80% on a drizzly day, and Moon scored particularly well with young people, suggesting he has a mandate for change. But Moon is left at the top of a Democratic Party that holds only 40% of the seats in Korea's Assembly. That means he will need to forge coalitions to get bills passed.
Samsung's decision to cancel its treasury shares is the sort of policy that could lead to a re-rating of Korean stocks, according to CLSA equity analyst Chris Wood. That long-sought move is bolstered by the rise in the payout ratio of Korean companies in recent years. The cash payout of profits has risen from 12% in 2013 to 21% in 2016.
Wood is "nervously" adding two percentage points on the Korean weighting in his Asia ex-Japan portfolio, cutting a point a piece from Hong Kong and Malaysia. He's worried not only about North Korea but also policy, since he thought Park's economic approach was quite sensible and was already leading to chaebol reform.
Now there's a risk of corporate-reform overkill, he believes. Moon is also softer in his approach to the North and has mentioned his willingness to enter talks -- and who knows how that position will go down with a belligerent Trump.