A 50% surge in two months, jumping to the ninth largest stock market in the world—how long can South Korea's stock market keep this frenzy going?

Under the dual drivers of a surge in global semiconductor demand triggered by artificial intelligence and domestic corporate governance reforms, South Korea’s KOSPI has risen nearly 50% this year, making it the world’s strongest major market and propelling South Korea’s stock market into the ninth largest exchange globally.

Bloomberg data shows that as of February 25, South Korea’s total market capitalization reached $3.76 trillion, an increase of approximately $2.23 trillion since the beginning of the year, surpassing France’s market of $3.69 trillion.

On February 26, the KOSPI index continued to rise by 3.67%, closing at 6,307.32 points, with an intraday high of 6,313.27 points, a new all-time high. South Korean stocks have consecutively surpassed France and Germany this year, fully reflecting the rapid revaluation of their valuation logic in capital markets. Since the start of the year, the KOSPI has gained about 46%, while France’s CAC 40 index has only increased by around 4.5% in the same period.

A Goldman Sachs report released on February 14 stated: The USD-denominated MSCI Korea Index leads the Asia-Pacific markets in gains. Despite the strong rally, Goldman Sachs did not recommend taking profits but instead raised the KOSPI’s 12-month target to 6,400 points.

The upward revision is based on the fact that Korean corporate earnings recovery has exceeded expectations, driven mainly by the expansion cycle of global tech giants’ capital expenditures, which has led to tighter supply of memory chips. For investors focusing on emerging markets in Asia-Pacific, Goldman’s view indicates that the bullish trend in Korean stocks has not yet peaked, and the semiconductor industry’s outlook will remain a key market focus.

Semiconductor Supply-Demand Imbalance as the Core Driver

The recent surge in the Korean stock market is fundamentally driven by a structural supply-demand imbalance in the semiconductor industry. SK Hynix’s stock price has increased about sixfold since early 2025, and Samsung Electronics’ stock price has nearly quadrupled.

Goldman Sachs pointed out in its report that U.S. capital expenditure on cloud computing and hyperscale data centers continues to grow rapidly, expected to reach $666 billion in 2026, a significant upward revision from the initial estimate of $548 billion. Meanwhile, the growth in storage chip supply has lagged far behind demand, resulting in record shortages of DRAM and NAND. This situation grants strong pricing power to storage chip manufacturers and significantly boosts profits through high operational leverage.

Additionally, SK Hynix is collaborating with SanDisk to promote the global standardization of high-bandwidth flash (HBF). The two companies have established a working group under the OCP framework, aiming for commercialization by 2027. HBF balances high bandwidth and large capacity by stacking NAND, optimized for AI inference scenarios, with a long-term market potential surpassing high-bandwidth memory (HBM).

Goldman Raises KOSPI Target to 6,400 Points

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

Analysts Timothy Moe and John Kwon outlined four supporting reasons. First, earnings growth is exceptionally strong. After achieving 36% growth in 2025, Goldman predicts that 2026 earnings per share (EPS) for Korean stocks will grow by 120% (compared to a consensus expectation of +115%). In late November 2025, market expectations for 2026 earnings growth were only +30%. Second, the technology hardware sector accounts for the majority of the 2026 earnings growth (about 88 percentage points), though other sectors like finance and automotive also contribute.

Third, valuation remains attractive. The forward 12-month P/E ratio of KOSPI is still below its historical average, providing a margin of safety for future gains. Fourth, policy and reform dividends continue to be released. Strong support from South Korean President Lee Jae-myung and ongoing corporate governance reforms, combined with the booming robotics industry driving significant gains in major companies like Hyundai Motor, form a systemic basis for market revaluation.

Foreign Capital Inflows and Valuation Discount Coexist

From the capital flow perspective, during the week of the report, foreign and institutional investors showed notable divergence: foreign net buying of KOSPI was about 3.47 billion KRW, while institutional net buying was about 5.43 billion KRW, and retail investors sold heavily with a net outflow of about 9.63 billion KRW. Goldman Sachs data indicates that South Korea’s equity risk sentiment indicator (ERB) has rebounded from deep risk aversion to -0.7.

In terms of valuation, despite the significant rise, the 2026 estimated P/E ratio of KOSPI remains around 9 times, trading at a substantial discount compared to MSCI Global and MSCI Asia-Pacific (excluding Japan) indices. Meanwhile, its P/B and ROE metrics are relatively strong within the Asia-Pacific market, supporting continued foreign investment inflows.

Risk Warnings and Disclaimer

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