Korean stock market explodes, not just storage

# Dong Jing

Source: Wall Street News

The Korea Composite Stock Price Index (Kospi) has jumped nearly 50% so far this year, making it the world’s best-performing major stock market. Three drivers are fueling the rally: the AI boom has sparked a super-cycle in memory chips, sending Samsung and SK Hynix surging 82% and 70% year-to-date respectively; President Lee Jae-myung has pushed aggressive financial reforms to systematically compress the “Korea Discount”; and the central bank has maintained an accommodative monetary environment to support liquidity.

South Korea’s stock market is experiencing a historic surge. Powered by a combination of three forces—the AI-driven memory chip super-cycle, a shrinking “Korea Discount,” and supportive macro policies—the Kospi has risen nearly 50% year-to-date, emerging as the world’s top-performing major equity benchmark.

On Thursday, the Kospi closed above 6,300 points for the first time, rising in 10 of the past 11 sessions and repeatedly hitting fresh record highs. Deutsche Bank strategist Jim Reid called it “the most extraordinary stock market story of 2026,” noting that such gains “usually take years or decades, not weeks.” Goldman Sachs had previously raised its year-end Kospi target to 5,700, only for the index to surpass that level within a week.

The immediate catalyst for the rally has been a vertical jump in memory chip prices, as hyperscale cloud providers are scrambling to buy all available DRAM and HBM chips. Samsung Electronics and SK Hynix together account for roughly 40% of the Kospi’s total market capitalization, and have jumped 82.5% and 69.8% respectively so far this year.

Meanwhile, as previously reported by Wall Street News, South Korean President Lee Jae-myung—drawing on his personal experience as a retail investor who once lost heavily in stock trading—has launched aggressive financial reforms since taking office last June, including strengthening board accountability, reforming dividend taxes, and cracking down on market irregularities. These measures have further amplified the rally.

## AI memory super-cycle: the core engine

The most direct driver of the Kospi’s surge is explosive demand for memory chips from global AI infrastructure build-out.

AI large model training and inference consume massive amounts of DRAM and high-bandwidth memory (HBM). Hyperscale cloud firms are hoarding chips regardless of cost, pushing memory prices sharply higher. As a core hub of the global memory supply chain, South Korea has been the biggest beneficiary of this demand boom.

Samsung Electronics and SK Hynix have been the undisputed leaders of the rally. The two companies make up about 40% of the Kospi, with year-to-date gains of 82.5% and 69.8% respectively. Goldman Sachs forecasts South Korea’s earnings per share will surge 75% in 2026, noting that “the bulk is concentrated in these two companies,” before raising its year-end Kospi target to 5,700—a level the index has long since left behind.

Deutsche Bank noted that investors are pricing in stronger demand, firmer pricing, and a longer upgrade cycle, with the chip sector leading the index higher. Notably, the Kospi has continued to hit record highs despite turmoil in other global markets.

## Compression of the “Korea Discount”: governance reforms reshape valuation

Deutsche Bank said memory chips are only half the story. The other half comes from a systematic repair of the long-standing structural discount in South Korea’s capital market.

South Korea’s stock market has long suffered from a valuation discount due to corporate governance issues—controlling shareholders prioritizing their interests over minority investors, complex cross-shareholdings, and weak board accountability. This “Korea Discount” left Korean stocks in the bottom third of global valuations for years.

As Wall Street News reported, Lee Jae-myung’s personal background provided unique motivation for the reforms. According to media reports citing insiders, he once worked as a day trader on the side and “lost everything,” blaming his losses on controlling shareholders repeatedly siphoning value from ordinary investors through unfair practices. That experience became a core driving force behind his push for reform.

Since taking office last June, Lee has implemented a series of aggressive measures: expanding fiduciary duties to strengthen board accountability, reforming dividend taxes to encourage payouts, increasing enforcement resources to crack down on market abuses, and announcing a roadmap to qualify for MSCI developed market status. Namuh Rhee, chairman of the Korea Corporate Governance Forum, said, “Every promise from previous governments disappointed, but this time is different.”

Mixo Das, head of Korea equity strategy at JPMorgan, struck a cautious note, stating, “The reforms are meaningful and do help valuations, but to say the Kospi rallied to 5,000 purely because of government policy probably overstates the impact.”

## Macro tailwinds: accommodative central bank and improved growth outlook

The third driver comes from supportive macro conditions.

The Bank of Korea recently raised its economic growth forecast and signaled it expects to keep its policy stance unchanged over the next six months, maintaining an accommodative monetary environment.

This has provided strong liquidity support for stocks, even as rising housing prices in Seoul have created some policy pressure. Deutsche Bank economist Juliana Lee recently offered a more optimistic view of South Korea’s economy than the market consensus.

In a longer-term context, the Kospi’s recovery is historic. Deutsche Bank data shows the index only decisively broke above its March 1989 all-time high in September last year—36 years after that peak.

## Asset allocation shift: the end of the real estate era?

Notably, as Wall Street News previously reported, the stock market surge is quietly reshaping how South Korean households allocate wealth: reforms are reversing Koreans’ mindset from overconcentration in real estate toward financial investments.

Real estate once accounted for nearly three-quarters of South Korean household assets. Peter S. Kim, global investment strategist at KB Securities, said, “The overconcentration in real estate relative to financial assets is about to reverse, one of the most profound trends in South Korea over the next decade.”

A recent report from KB Financial Group also noted that high-net-worth individuals now rank domestic real estate and equities equally in their allocation priorities—a rare signal of rising market interest.

Lee Jae-myung himself has backed the stock market with action: days before his election last June, he bought 40 million won (about $27,600) worth of domestic equity ETFs and pledged to invest 1 million won monthly after taking office. By September last year, those investments had returned 26.4%.

The rally has also earned Lee a reputation as a “people’s hero” among South Korea’s 14 million retail investors. A Gallup Korea survey showed his approval rating rose to 63% in mid-February this year, the highest in more than three months.

## Risks remain: bubble warnings and structural concerns

However, Jim Reid of Deutsche Bank has already issued a clear warning.

Under Deutsche Bank’s long-term valuation framework, the Kospi’s sharp rally has moved it from “undervalued” to “overvalued.” Reid wrote, “In the long run, valuations always win out, and this shift warrants caution.”

A more immediate risk is that the rally is highly dependent on sustained memory price gains. A reversal in chip prices would hit Samsung and SK Hynix first, triggering a sharp correction in the Kospi and potentially forcing the Bank of Korea to intervene defensively.

Macro vulnerabilities also cannot be ignored. South Korea’s economy contracted in the fourth quarter, and its export-reliant structure makes it highly sensitive to global demand shocks. South Korean households carry one of the world’s heaviest debt burdens, which Lee himself has called a “ticking time bomb.”

Meanwhile, some retail investors remain on the sidelines of the domestic market, with capital continuing to flow out and into U.S. stocks at a record pace, further weighing on the Korean won.

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