South Korea Economic Update: January 2, 2026 – Stock Market Drop & Auto Policy Changes

Continued Decline in the KOSPI Stock Market

On January 2nd, the Korea Composite Stock Price Index (KOSPI) closed below 6,900, marking a decline for the day. Meanwhile, the Nasdaq dropped 0.76%, reflecting ongoing weakness in U.S. markets. [2]

While Nvidia shares fell slightly by 0.5%, optimism grew as demand for H200 chips from China surged, leading TSMC to request increased production. However, there are concerns that the Trump administration might limit TSMC's investments in China, which could impact future growth. [2]

Major Changes in Auto Industry Policies

The Korea Automobile & Mobility Industry Association (KAMA) announced new auto policies effective from 2026. The 30% reduction in the individual consumption tax will be extended for six months (until June 30, 2026), and fuel tax incentives will also be extended for two months (until February 28, 2026). [5]

New incentives for electric vehicle (EV) purchases have been introduced, offering up to an additional 1,000,000 KRW (about $850) when replacing or selling a traditional car and buying an EV. The target for low- and zero-emission vehicle sales (electric and hydrogen cars) has been raised to over 50% by 2030. [5]

Monitoring Exchange Rates and Inflation Trends

The KRW-to-USD exchange rate is hitting record highs, with the won trading around 1,440 to the dollar at the end of last year. The Bank of Korea is actively working to stabilize the currency. [3]

Consumer prices increased by 2.1% annually, slightly above the Bank of Korea’s 2% target. Real-world inflation feels even higher, especially with rising food and dining costs, which are putting extra pressure on household budgets. [1][3]

Key Business and Policy Highlights

• China announced early investments for the new year, allocating approximately 61 trillion KRW (about $52 billion) to strategic projects. [1]
• Elon Musk revealed plans to mass-produce brain-computer interfaces and automate surgical procedures. [1]
• Luxury hotel buffets at Shilla and Lotte Hotels have increased to around 200,000 KRW ($170) per person, pushing family dining costs to roughly 800,000 KRW ($680) for a family of four. [1]
• South Korea’s Deputy Minister of Science and ICT emphasized expanding the country's AI territory and fostering future tech innovations in his New Year’s speech. [1]
• CES 2026 will feature the largest-ever Korea Pavilion, showcasing the country’s latest tech advancements. [1]

Additionally, Korea Zinc’s joint venture with Crousible is proceeding smoothly with new share issuance, and Bain Capital has launched a tender offer for Eco Marketing. [1]

Regional Economic Development Initiatives

Yongwol County plans to restart the historic Sangdong Mine in the first half of this year. Projects like the Donghae and Samcheok hydrogen clusters are also moving forward. [1]

Meanwhile, the Chinese yuan has overtaken the Japanese yen to become the third most traded currency in Korea’s currency basket, with the won gaining ground. [1]