A 50% surge in two months and now ranked as the world's ninth largest stock market—how much longer can the Korean stock market stay crazy?

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Driven by the global surge in semiconductor demand sparked by artificial intelligence and domestic corporate governance reforms, the Korea Composite Stock Price Index (KOSPI) has risen nearly 50% this year, making it the strongest-performing major market in the world and propelling the Korean stock market to become the ninth largest exchange globally.

According to Bloomberg data, as of February 25, the total market capitalization of the Korean stock market reached $3.76 trillion, an increase of about $2.23 trillion since the beginning of the year, surpassing France’s market cap of $3.69 trillion.

On February 26, the KOSPI index continued to rise by 3.67%, closing at 6,307.32 points, and hitting a historical high of 6,313.27 points during trading. This year, Korean stocks have consecutively surpassed France and Germany, fully reflecting the capital market's rapid reevaluation of their valuation logic. Since the start of the year, KOSPI’s cumulative gain has been about 46%, compared to only about 4.5% for France’s CAC 40 during the same period.

In a report released on February 14, Goldman Sachs stated: The MSCI Korea Index, denominated in US dollars, leads the Asia-Pacific market in gains. In the face of the strong uptrend, Goldman did not recommend taking profits, but instead raised the 12-month target for KOSPI to 6,400 points.

The upward adjustment is based on the fact that, Korean firms’ earnings recovery momentum far exceeds expectations, with the main driver coming from the tightening supply of memory chips triggered by the global tech giants’ capital expenditure expansion cycle. For investors focusing on emerging markets in the Asia-Pacific, Goldman’s view suggests that Korean stocks’ strong performance is not yet at its peak, and the semiconductor industry chain will remain the main theme for market tracking.

Semiconductor Supply-Demand Imbalance Is the Core Driver

The fundamental driving force behind this surge in the Korean stock market is the structural supply-demand imbalance in the semiconductor industry. Since early 2025, SK Hynix’s share price has risen about sixfold, while Samsung Electronics’ share price has nearly quadrupled.

Goldman Sachs pointed out in its report that US cloud computing and large-scale data centers’ capital expenditures are continually and rapidly increasing. Spending is expected to reach $666 billion in 2026, a significant upward revision from the earlier estimate of $548 billion. However, the supply growth of memory chips has fallen far behind demand, resulting in record supply gaps for both DRAM and NAND. This situation gives memory chip manufacturers strong pricing power, and operating leverage is significantly boosting their profits.

Additionally, SK Hynix is partnering with SanDisk to advance the global standardization of high-bandwidth flash memory (HBF). The two established a working group under the OCP framework, aiming to commercialize HBF by 2027. HBF balances high bandwidth and large capacity by stacking NAND, specifically optimized for AI inference scenarios, and its long-term market scale is expected to surpass high-bandwidth memory (HBM).

Goldman Raises KOSPI Target to 6,400 Points

In its report, Goldman Sachs raised the 12-month target for KOSPI to 6,400 points and maintained an overweight rating on Korean stocks.

Analysts Timothy Moe and John Kwon put forward four main supporting reasons. First, earnings growth is exceptionally strong. After achieving 36% growth in 2025, Goldman forecasts that earnings per share for the Korean stock market will rise by 120% in 2026 (market consensus is +115%). At the end of November 2025, the market's expectation for 2026 earnings growth was only +30%. Second, the technology hardware sector contributes the vast majority (about 88 percentage points) of the earnings growth in 2026, though other sectors like financials and autos also contribute.

Third, valuations remain attractive. KOSPI’s 12-month forward P/E ratio is still below the historical average, providing a margin of safety for the next rally. Fourth, policy and reform dividends keep releasing. Strong support for the stock market from President Lee Jae-myung and the advancement of corporate governance reforms, along with improving prospects in the robotics industry driving significant increases in related stocks such as Hyundai Motor, together form the institutional basis for market reevaluation.

Foreign Capital Flows In Amid Valuation Discount

In terms of capital flows, for the week the report was released, foreign and institutional funds showed significant divergence: foreign investors net bought about 3.47 billion KRW of KOSPI, institutions net bought about 5.43 billion KRW, while retail investors net sold about 9.63 billion KRW. Goldman’s data shows Korea Equity Risk Barometer (ERB) has rebounded from deep risk-aversion territory to -0.7.

In terms of valuation, despite the sharp rise, KOSPI’s expected P/E ratio for 2026 remains at about 9x, which is still notably discounted compared to the MSCI Global Index and MSCI Asia-Pacific (excluding Japan) Index. At the same time, its P/B to ROE ratio ranks favorably in the Asia-Pacific market, providing relative valuation support for continued capital inflows.

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