By Craig Mellow
South Korea was a breakout global markets star in 2025, with the iShares MSCI South Korea exchange-traded fund nearly doubling. This year could see more gains, though a repeat is unlikely.
Starting from a deep "Korea discount" driven by terrible corporate governance practices, stocks still aren't expensive. The Korean market trades at an average of 10 times forward earnings, compared with 17 for fellow tech powerhouse Taiwan, notes Paul Dmitriev, an emerging markets portfolio manager at Global X ETFs.
The country of 52 million, with the world's No. 14 economy, has emerged from the maelstrom of 2025 in a geoeconomic sweet spot. That starts with the two names that account for more than 40% of market capitalization between them: Samsung Electronics and SK Hynix. They also make up two-thirds of a triopoly that dominates the global market for memory chips. The third is U.S.-based Micron Technology.
Contract prices for DRAM memory jumped more than 20% over the past quarter on demand from artificial intelligence hyperscalers, says James Lim, portfolio manager for Korea at Dalton Investments. With the Big Three restraining capacity, prices could go higher still, he predicts. "The demand from AI is pretty unprecedented," Lim says. "There is room for the companies to further rerate."
Dalton is more enthused about Samsung, whose shares climbed a mere 125% last year while SK Hynix's have nearly quadrupled. "Samsung is catching up in high bandwidth memory better than the market expected, and its shares are still below their historical peak," Lim says.
South Korea also offers top electric equipment manufacturers whose order books, and shares, are popping on AI's appetite for power. Top names in this category include Hyundai Electric and Hyosung Heavy Industries.
As the dust settles from President Donald Trump's trade typhoon, Korea has ended up in a relatively advantageous position. An October agreement between Washington and Seoul lowered auto tariffs from 25% to 15%, on par with Japan and the European Union, and pledged that levies on Korean semiconductors would be "no less favorable" than for other suppliers like Taiwan. "The October trade deal was very positive for Korea," Dmitriev concludes.
Domestically, President Lee Jae Myung, elected in June, has warmed investors' hearts with a corporate governance (by Korean standards) blitzkrieg. Legislators from his Democratic Party quickly amended the country's commercial code to add corporate directors' fiduciary responsibility to shareholders. Late last year, they slashed the top tax rate for most corporate dividends from 50% to 30%.
The main reform goal for 2026 will be eliminating incentives for controlling families to keep share prices low as they pass holdings to the next generation, Lim says. Lee's left-leaning party ideologically opposes one remedy, cutting inheritance taxes from a maximum 60%. It is considering another, though: valuing stock transfers at a flat 0.8 times book value for tax purposes. Many Korean chaebol still languish as low as 0.3 times book, Lim says.
"This has been one of the holy grails of remedying the Korean discount, and there's at least a 50-50 chance of it passing this year," he says.
With gross domestic product per capita on par with Japan and a stagnant population, South Korea's tigerish growth days are behind it. The economy is still projected to accelerate this year from 1% to at least 2% growth, driven by an interest rate cutting cycle that may go further. That has Dmitriev looking at domestic-facing stocks too, particularly fallen internet angels of the 2021 vintage like e-commerce leader Coupang and social media-cum fintech power Kakao.
The laws of financial physics will likely slow Korean stocks down in 2026. Global X is shifting some powder to 2025 laggard India, while maintaining a "not heavy overweight" on Korea, Dmitriev says.
Some companies have been bid up on governance reforms that they may not deliver, Lim adds. Still, he is ballparking another 20% gain for equities this year. Not too bad.
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December 31, 2025 17:07 ET (22:07 GMT)
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