South Korea's stock market surges, it's not just about storage.
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The South Korean stock market is experiencing a historic surge. Driven by a triple engine—an AI wave-fueled memory chip super cycle, the ongoing compression of the “Korea Discount,” and proactive macro policies—the Korea Composite Stock Price Index (Kospi) has soared nearly 50% so far this year, becoming the most outstanding major stock market in the world.
On Thursday, Kospi closed above 6,300 points for the first time, logging gains in 10 out of the past 11 trading days and repeatedly setting all-time highs. Deutsche Bank strategist Jim Reid called it “the most extraordinary stock market of 2026,” noting that such gains “usually take years or even decades, not weeks.” Goldman Sachs recently raised its year-end target for the Kospi to 5,700, but the index surpassed that target within a week.
The immediate catalyst for this rally is the vertical spike in memory chip prices, as hyperscale cloud providers scramble for every available DRAM and HBM chip. Samsung Electronics and SK Hynix together make up about 40% of Kospi's market cap, with year-to-date gains of 82.5% and 69.8% respectively.
Meanwhile, as Wallstreetcn previously reported, President Lee Jae-myung, drawing on his early experience as a “retail investor” who lost money in the stock market, has pushed for aggressive financial reform since taking office in June last year—strengthening board accountability, reforming dividend taxes, and cracking down on market violations. These initiatives have further amplified the rally.
AI Memory Super Cycle: The Core Engine of the Rally
The most direct driver of this Kospi surge is the explosive global demand for memory chips in AI infrastructure construction.
Training and inference of AI large models are extremely memory-intensive, consuming vast amounts of DRAM and High Bandwidth Memory (HBM). Hyperscale cloud providers are stockpiling chips at any cost, driving memory prices up almost vertically. As the core node in the global memory supply chain, South Korea is the biggest beneficiary of this demand boom.
Samsung Electronics and SK Hynix are the absolute stars of this rally. Together, they account for around 40% of Kospi’s market value, with annual gains as high as 82.5% and 69.8% respectively. Goldman Sachs forecasts 75% earnings growth for South Korean equities in 2026, noting that “it is mainly concentrated in these two companies,” and thus raised its year-end Kospi target to 5,700—which the index has already left far behind.
Deutsche Bank notes that investors are pricing in stronger demand, firmer pricing, and a longer upgrade cycle, with the chip sector leading the index. Notably, despite turmoil in other global markets, the Kospi continues setting record highs.
“Korea Discount” Narrows: Governance Reform Reshapes Valuation Logic
Deutsche Bank says that memory chips are only half the story. The other half comes from the systematic narrowing of a long-standing structural discount in the Korean capital market.
For years, the South Korean market has suffered a valuation discount due to corporate governance issues—controlling shareholders’ interests trumping those of ordinary shareholders, complex cross-shareholding structures, and weak board accountability. This “Korea Discount” has kept South Korean equities in the lower third of global valuation rankings.
Wallstreetcn reports that Lee Jae-myung’s personal experience adds a unique background to the reforms. According to media sources, he once day-traded as a side job and “lost everything,” attributing his losses to controlling shareholders systematically undermining the interests of retail investors through unfair practices—this experience became his main motivation for reform.
Since taking office last June, Lee Jae-myung has implemented a series of aggressive measures: expanding fiduciary duties to strengthen board accountability, reforming the dividend tax to encourage payouts, increasing enforcement resources to crack down on market violations, and announcing a roadmap to seek MSCI developed market status. Namuh Rhee, chairman of the Korea Corporate Governance Forum, said, “Every promise by previous governments has been disappointing, but this time is different.”
Mixo Das, head of Korean equity strategy at J.P. Morgan, takes a cautious view, saying, “Reform is important and helps valuations, but to say Kospi hit 5,000 solely because of government policy probably overstates the effect.”
Macro Tailwinds: Loose Monetary Policy and Improved Growth Expectations
The third driver is positive macro support.
The Bank of Korea has recently raised its growth forecast and made it clear that it does not expect to adjust policy in the next six months, maintaining a loose monetary stance.
This has provided ample liquidity support for the stock market, despite ongoing pressure on policymakers from rising Seoul property prices. Deutsche Bank economist Juliana Lee is more optimistic than consensus about Korea’s economic outlook.
On a longer timeline, this rally in the Korean stock market is historic. According to Deutsche Bank, it wasn’t until September last year that the Kospi finally broke through its all-time high from March 1989, ending a 36-year wait.
Asset Allocation Shift: The End of the “Property Era”?
It is worth noting that, as Wallstreetcn previously reported, this bull market is quietly changing Korean household wealth allocation logic: the reforms are shifting South Koreans’ views of wealth from property concentration to financial investments.
Real estate previously accounted for nearly three-quarters of Korean household assets. Peter S. Kim, global investment strategist at KB Securities, says, “The excessive concentration in real estate over financial assets is about to reverse. This is one of Korea’s most profound trends for the next decade.”
A recent report from KB Financial Group also notes that high net worth individuals now prioritize domestic real estate and equities equally, a rare sign of growing market interest.
Lee Jae-myung has also put his money where his mouth is—days before the June 2023 election, he bought domestic stock ETFs worth 40 million won (about $27,600), pledging to invest 1 million won each month if elected. By September last year, these investments had returned 26.4%.
This rally has also gained Lee a “folk hero” reputation among Korea’s 14 million retail investors. According to Gallup Korea, his approval rating rose to 63% in mid-February this year, the highest in over three months.
Risks Remain: Bubble Warnings and Structural Concerns
However, Jim Reid of Deutsche Bank has already issued a clear warning.
According to Deutsche Bank’s long-term valuation framework, the Kospi’s meteoric rise has pushed it from “undervalued” to “overvalued.” Reid writes, “In the long run, valuation always wins out, and this shift warrants caution.”
A more immediate risk is that the rally depends heavily on ever-rising memory prices. If these prices reverse, Samsung and SK Hynix will be hit hardest, triggering a sharp Kospi correction and potentially forcing the Bank of Korea to step in and rescue the market.
Macro-level risks are also not to be overlooked. Korea’s economy contracted in Q4, and its export-oriented structure makes it highly sensitive to global demand shocks. Korean households carry one of the highest debt burdens in the world—a “ticking time bomb,” as Lee Jae-myung put it.
Meanwhile, some retail investors remain cautious about the domestic market, with capital outflows hitting records as funds flood into U.S. stocks, further pressuring the Korean won.
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