Lee Jae-myung had pledged during last year's election campaign to help the KOSPI index break through the 5000-point milestone.
The South Korean stock market has demonstrated robust performance at the beginning of 2026.
Since the start of the year, the Korea Composite Stock Price Index (KOSPI) has been on a steady upward trajectory. Continuing its momentum from the previous year, the KOSPI maintained its ascent after surpassing 4300 points, breaking through the 4600-point barrier for the first time on the 7th before experiencing a slight pullback. On the 9th, the KOSPI closed at 4586.32 points, marking an increase of 33.95 points from the previous trading session. During his campaign last year, South Korean President Lee Jae-myung committed to pushing the KOSPI index above the 5000-point mark by improving corporate governance, amending the country's commercial laws, and expanding the scope of the board of directors' fiduciary duties to shareholders. With the KOSPI's continued rise, analysts now suggest that, at the current pace, the index could potentially surpass 5000 points within the current month.
What Factors Are Driving the Surge? The artificial intelligence (AI) boom is undoubtedly a major catalyst behind the recent rally in South Korean equities. In a report late last year, Goldman Sachs Group noted, "The end of the semiconductor inventory destocking cycle and the new demand cycle driven by AI have created strong expectations for an earnings recovery in South Korean tech stocks. This is the core engine driving the KOSPI's upward movement." Benefiting from a cyclical recovery in the global semiconductor industry, the performance and stock prices of giants like Samsung Electronics and SK Hynix, which are pillars of the South Korean economy, significantly influence the broader market. On the 8th, Samsung Electronics' latest earnings data revealed that, based on consolidated financial statements, its operating profit for the fourth quarter of 2025 surged by 208.2% year-on-year, while sales increased by 22.7%, with both figures hitting record highs. Previously, Samsung Electronics co-CEO Jeon Yong-hwan expressed optimism in his New Year's address. NVIDIA CEO Jensen Huang's speech at CES 2026 also conveyed a positive outlook for the chip industry. Furthermore, comments from Federal Reserve Governor Michelle Bowman suggesting the potential for interest rate cuts exceeding 100 basis points within the year have all contributed to the KOSPI's rise. A UBS report indicated that besides the push from tech stocks, the performance of non-tech sectors should not be overlooked. For instance, long-term growth trends in momentum stocks, represented by industries such as nuclear power, grid equipment, and defense, are expected to persist. Additionally, a series of economic measures from the Lee Jae-myung administration have injected confidence into the South Korean stock market. These include capital market reform policies, exemplified by the "Value-up Program," aimed at ending the so-called "Korea Discount" phenomenon. Simultaneously, the South Korean government has launched a fund worth 150 trillion won, designed to stimulate innovation in the country's high-tech industries to address stagnant domestic economic growth and an aging population. Zhan Debin, Vice President of the Shanghai Society for Korean Peninsula Studies and Director of the Center for Korean Peninsula Studies at the Shanghai University of International Business and Economics, stated, "The measures introduced by the Lee Jae-myung administration have indeed stimulated the South Korean economy in the short term, sending positive signals. The KOSPI repeatedly hitting new highs since the second half of last year is the best evidence." Of course, amidst the KOSPI's climb, concerns about an AI bubble persist. A report from the Korea Institute of Finance highlighted that due to factors like caution over an AI bubble, foreign capital flows in the South Korean stock market could still experience significant volatility. The institute's latest data shows that as of the end of last December, foreign ownership accounted for 32.9% of the market capitalization in South Korean stocks, reaching a six-year high. Herald van der Linde, Head of Asia Equity Strategy at HSBC, also cautioned, "The rapid rise in South Korean stocks has already led to elevated valuations in some sectors. Investors should be wary of the risk of short-term technical corrections."
Caution Over Capital Outflows On the 9th, the South Korean government set a target of "achieving GDP growth exceeding 2% this year," aiming to make 2026 the "first year of a great leap forward for the South Korean economy." The previous day, the United Nations released the "World Economic Situation and Prospects 2026" report in New York, projecting South Korea's economic growth at 1.8% for this year and 2.0% for next year, similar to the Bank of Korea's economic outlook from November last year. Among various institutions, Citigroup is the most optimistic. Citigroup Research economist Jin Zhenxu pointed out in a recent report that, supported by strong semiconductor exports and weak energy prices, the South Korean economy might enter a "Goldilocks" state in 2026, achieving a balance between overheating and overcooling. He further predicted that South Korea's economic growth rate for 2026 could be around 2.2%, slightly above the potential growth rate expectation of 1.8%, while inflation might stabilize at an average of 1.8%, below the Bank of Korea's 2% target. "This ideal state would create ample room for the government to implement market-oriented financial and industrial policies," the report stated, simultaneously raising its KOSPI target from 3700 points to 5500 points. While UBS also anticipates a rebound in South Korea's economic growth this year, it emphasizes that most of the Lee Jae-myung administration's short-term policy reforms have already been passed by the domestic legislature. Companies will begin implementation after most new regulations take effect in the second half of the year, making corporate execution during that period crucial to the reforms' success. In contrast to institutional optimism, Zhan Debin noted that many ordinary South Koreans still perceive the current economic climate as lacking. "For instance, difficulties in finding employment, rising prices, and stagnant wages are the most direct concerns for the average citizen," he said. He also cautioned that the implementation of the South Korea-US trade agreement starting this year is worth monitoring. Balancing domestic market commitments while increasing investments in the US market poses a tricky challenge for South Korean companies. A recent survey by the Korea Employers Federation (KEF) revealed that, against the backdrop of US tariff pressures and heightened uncertainty in the global operating environment, an increasing number of large South Korean companies plan to reduce domestic investments and ramp up overseas spending starting in 2026. Industry insiders in South Korea worry that this trend could exacerbate the risk of capital outflows, adding extra pressure to the domestic economic recovery process.
Comments