By Craig Mellow
On Feb. 27, South Korean President Lee Jae Myung announced he would sell an apartment he owns in Seoul and invest the proceeds in his country's sizzling stock market. His timing was poor.
The U.S.-Israeli attack on Iran, launched the following day, has knocked 17% off the iShares MSCI South Korea exchange-traded fund, paring its 12-month gain to a mere 130%.
"It was reasonable for investors to take some profit amid the geopolitical uncertainties," comments Jason Lui, head of Asia Pacific equity strategy at BNP Paribas.
Could the rally reignite if peace returns to the Persian Gulf? That depends which Korea you are talking about, though both face challenges.
The No. 15 global economy seems fated for energy aftershocks even if the war in Iran ends soon. Oil and gas imports accounted for more than 5% of gross domestic product last year. Lee's government deployed $17 billion, or about 1% of GDP, in emergency spending to cushion the impact.
That was "not taken well by investors" concerned about fiscal creep, says James Lim, portfolio manager for Korea at Dalton Investments. Yields on 10-year government bonds have risen 0.31 percentage points since Feb 28.
Korean stocks depend at least as much on global sentiment around artificial intelligence, however. The country is home to two of the top three memory-chip producers: Samsung Electronics and SK Hynix. They represent more than 40% of Korean market capitalization between them.
Add "other names tied to AI momentum" and that figure rises to more than 70%, Lim says.
The outlook here is more complicated. Straight vertical expectations for memory-chip demand took a hit late last month when researchers at Alphabet subsidiary Google claimed they could "compress AI memory usage to one-sixth" with a new technology called TurboQuant. Shares in U.S. memory champion Micron Technology joined its Korean rivals' plunge, falling 20% from a mid-March peak.
Other scientists were quick to contest TurboQuant's capabilities, leaving investors with a puzzle.
"Google's paper has some validity, but we'll still need all the memory these companies can produce for the next three years," says Gil Luria, head of technology research at D.A. Davidson.
Igor Tishin, CEO of IBT Capital, is "staying long memory," and particularly long SK Hynix. "Hynix is the dominant player in HBM3 and 4," he says, referring to the latest generations of high-bandwidth memory chips. "They deserve the stock rerating."
Shares of all South Korean companies will continue to struggle against a falling won as the fuel import bill rises, Lui predicts. The currency has already crashed 6% against the dollar since the Iran war started, and it's down 11% from a peak last summer. "The rise in oil price will likely deteriorate the terms of trade for many of the Asian economies," Lui says.
The good news is that Lee & Co. are steaming ahead with improving a corporate-governance regime that still has 60% of listed Korean companies trading below book value, Lim says.
The government is looking to cut taxes on dividends, raise them on real estate, and force underperforming companies to publish a "value-up" improvement plan, among other measures.
Such slow-burn measures are a distant concern until the news-driven storm blows over, though.
"We're maintaining our holdings in Korea, but aren't in a rush to commit more capital," Lim says. "Another 10% drop might increase our appetite."
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(END) Dow Jones Newswires
April 03, 2026 21:30 ET (01:30 GMT)
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