Investors bet on AI and governance reforms as South Korean stock market hits record high.
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Driven by the global AI boom and corporate governance reforms, South Korea’s benchmark stock index has set intraday records 16 times this month, with a year-to-date gain of 72%.
The KOSPI index, South Korea’s benchmark, has continued to reach new historical highs this month. Fueled by the AI-driven chip stock boom and governance reforms, it has set 16 new intraday highs just in October, rising nearly 21%, and breaking through the 4,000-point barrier.
This rally has pushed the Kospi’s cumulative gain this year to more than 72%, well above the 26% rise for Japan’s Nikkei 225. Samsung Electronics and SK Hynix both released strong earnings this week, further boosting market confidence; combined, the two companies have a total market capitalization of over 1,000 trillion won, accounting for more than 30% of the KOSPI’s total market cap.
Analysts say South Korea’s strong stock market performance not only reflects the global AI boom, but also benefits from the steady progress of structural reforms aimed at eliminating the "Korea discount". Although foreign investors had net sold 1.37 trillion won in Korean stocks last week, aggressive buying by domestic investors kept the KOSPI’s upward momentum intact.
Market experts note that despite the sharp rise, Korean stocks are still attractively valued: the KOSPI’s price-to-earnings ratio stands at 17.65, lower than the Nikkei 225’s 25.86. However, the effectiveness of reforms, geopolitical risks, and uncertainty over US interest rates could result in volatility.
AI chip boom leads the rally
The recovery of the AI-driven semiconductor sector is the core driving force behind the current rally. Arjun Jayaraman, portfolio manager at Causeway Capital Management, said,
"AI is a long-term growth driver for years to come and cannot be ignored. Samsung and SK Hynix are at the heart of this growth."
According to a previous article by Wallstreetcn, SK Hynix reported record quarterly revenue and profits on Wednesday, boosted by strong demand for high-bandwidth memory used in generative AI chips. Its share price has more than doubled this year. Samsung Electronics reported on Thursday that operating profit more than doubled quarter-on-quarter driven by a rebound in its chip business, and its share price has risen more than 96% this year.
Daniel Yoo, Head of Global Asset Allocation at Yuanta Securities, noted, "The main drivers of this rally are the recovery in the memory chip industry and the resulting upward revisions in corporate earnings forecasts."
Strong earnings expectations for key companies like Samsung and SK Hynix have lifted investor sentiment, with the expected supercycle triggered by a global shortage of memory chips adding further momentum.
Governance reforms redefine investment value
Beyond the semiconductor sector, policy shifts and corporate governance reforms are reshaping South Korea’s investment appeal. Regulators and legislators are increasingly promoting shareholder-friendly practices and narrowing the valuation gap between Korean companies and global peers through the “Value-Up Program.”
Fiona Yang, portfolio manager at Invesco, stated, "South Korean stocks have long traded at a significant discount to global and regional markets due to factors such as low corporate governance and shareholder returns — commonly known as the ‘Korea discount.’"
FactSet data shows the Kospi’s P/E ratio is 17.65, while the Nikkei 225’s is 25.86.
The “Corporate Value Enhancement Plan” to be introduced in 2024 is widely seen as South Korea’s version of Japan’s corporate governance reform, aiming to boost valuations by encouraging listed companies to improve shareholder returns and governance.
The plan includes tax incentives for participating companies, especially those that increase dividends or buybacks, and encourages firms to deploy excess cash for dividends, buybacks, and business restructuring.
Michelle Kam, Investment Strategist at Standard Chartered Bank’s Chief Investment Office, commented, "Expectations that the government’s Corporate Value Enhancement Plan will eliminate the long-standing ‘Korea discount’ and boost market performance have supported the current rally."
Yang added, "If regulators remain committed to these value-enhancement initiatives, the market rally could be sustained."
Domestic investors take over from foreign capital
While foreign investors sparked this year’s rally, domestic investors have now taken the baton.
Data from Yuanta Securities shows that foreign institutional investors initially bought large tech stocks at the end of last year, fueling the early rally, but since then, domestic institutions and individual investors have stepped in aggressively to maintain momentum.
Though foreign investors net sold 1.37 trillion won in Kospi stocks last week, the index still maintained its upward trend. Yoo stated:
"Kospi keeps hitting record highs, largely thanks to the support from domestic investors. Retail investors are actively buying dips, and local institutional investors, including pension funds, have also turned net buyers."
This shift in investor structure has strengthened market stability and reduced reliance on foreign capital flows. The domestic investors’ confidence in the reform windfalls and their reevaluation of long-undervalued assets have become the key factors supporting the sustained market uptrend.
Valuations remain attractive
Despite the sharp run-up, analysts believe the valuations for South Korean stocks remain reasonable. FactSet data shows that investors are paying 14.93 times next fiscal year’s earnings for Kospi companies.
By global standards, Korea’s leading semiconductor companies are still undervalued. Yuanta Securities data shows that, based on 2026 price-to-book ratios, Samsung Electronics stands at 1.4 times, SK Hynix at 2.2 times, whereas the global semiconductor peer average is 3.0 times.
Jayaraman noted:
"If you separate export-oriented Korea from domestic-demand Korea, domestic-demand Korea has long underperformed. But look at Korean banks and other assets—they’re trading at about half of book value, which is very, very cheap."
Yoo stated:
"In a world being reoriented around AI, automation, and energy efficiency, Korean valuations are not only reasonable, but likely mispriced. This rally is driven by fundamental improvements, not speculative excess."
It is noteworthy that analysts also point out that geopolitical tensions, uncertainty over US interest rates, and domestic asset inflation could bring volatility.
Yoo warned that foreign capital inflows into the semiconductor sector are showing signs of fatigue, which could lead to increased short-term volatility, although he added that fundamentals remain solid.
Yang said that the current rally is also being driven by optimistic market expectations, especially for tech earnings growth and trade policy outcomes, so any disappointment in these areas could trigger a pullback.
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