By Craig Mellow
South Korea has had the world's hottest stock market over the past year, with the Kospi Index surging 165% thanks to the country's two semiconductor powerhouses, Samsung Electronics and SK Hynix.
That's causing some problems -- and could cause more if the past week's tech stock downturn continues.
Samsung and SK Hynix, along with U.S.-based Micron Technology, dominate the global market for advanced memory chips. Hyperscalers rushing to build artificial-intelligence capacity are paying virtually any price for their products. Samsung's operating profit soared more than sevenfold year over year in its latest earnings report.
"This is new territory," says Gi-Wook Shin, director of Stanford University's Korea Program. "It's creating a lot of issues within Korea."
The most immediate issue has been engineers pushing for their slice of the pie. Faced with a strike late last month, Samsung agreed to a profit-sharing deal that could see bonuses in the memory-chip division reach $400,000 this year, estimates James Lim, portfolio manager for Korea at Dalton Investments. SK Hynix quietly reached a similar settlement late last year.
Investors applaud the largess. "Losing talent in this field would be a death blow for any company," says Jing Jie Yu, who covers the Korean giants for Morningstar. "The profit-sharing retains talent."
Some members of President Lee Jae-myung's left-leaning cabinet were less thrilled. His policy chief grumbled that part of the chip makers' windfall should fund a "national dividend." The labor minister called for "new rules for distribution through social dialogue."
Lee himself poured cold water on these notions during a June 8 press conference. The state would already reap its share through established corporate taxes, he argued. Extraordinary measures would discourage international investment that Korea needs. "Lee is trying to walk a line between his leftist roots and a very pragmatic shift," says Benjamin Engel, a Korean studies professor at Dankook University outside Seoul.
Samsung and SK Hynix's mind-boggling earnings and bonuses have opened something of a Pandora's box anyway. Disgruntled employees at less-privileged Samsung divisions are leaving their union and trying to form a new one, Stanford's Shin says. Unions at other marquee firms like Hyundai Motor and internet conglomerate Kakao are demanding 30% of operating profit, Lim adds. Samsung shared 12%. On the other hand, Samsung shareholders are complaining that the employee bonus violated their rights.
These controversies might look like a mild kerfuffle if the chip makers' shares keep falling back to earth. Foreign investors have in fact sold more than $40 billion worth of Korean stocks over the past half year as many funds reached their allocation limits, Lim says. Local retail savers have more than filled the gap, many of them novice equity holders increasingly buying through leveraged instruments. "A lot of 'ant investors' are borrowing money to get into the market," Engel says. "It's kind of scary."
Samsung shares dropped 16% over the past week, paring their year-to-date gain to a mere 150%. SK Hynix is down 13%.
Memory chip prices will reassert their cyclical nature but not too soon, Morningstar's Yu predicts. Major expansions from all the Big Three should start to come on-line in 2028 as current fixed-price agreements start to expire.
Market mood swings could deflate the share price balloon well before that, though. "You're seeing tremendous volatility in Korean markets when sentiment weakens, which indicates leveraged investors getting a margin call," Dalton's Lim says.
Success can bring its own headaches.
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(END) Dow Jones Newswires
June 12, 2026 21:31 ET (01:31 GMT)
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