The Korean market experienced a 40% drawdown. It's then rallied 21% in a fortnight
What happened to that bear market?
On July 30, South Korea's Kospi index was languishing at 5593, in the clutches of a bear market and 3.4% of the population had faced a margin call as the benchmark fell by more than a fifth .
Fast forward a fortnight amid some very rapid and painful deleveraging, and the index now stands at 6813 after a stealth rally of 21%.
What's caused this Lazarus-like recovery? Well, put simply the fundamentals have reasserted themselves. The driving force behind the strength in Korean stocks KR:180721 over the last eighteen months has been the AI hardware trade, primarily demand for the semiconductor chips manufactured by the two heavyweights of the South Korean economy, Samsung Electronics (KR:005930) and SK Hynix (KR:000660).
Results in the last few weeks from both companies showed fast growth, burgeoning demand, strong margins and reassuring guidance. Comments from Elon Musk on the SpaceX earnings call $(SPCX)$ convinced many of the sustainability of demand for memory chips while the U.S. hyperscalers either confirmed or increased their capex commitments over the next few years.
On Tuesday it was revealed that Korean exports had surged 45% year-over-year in the first ten days of August, and the figures for semiconductors were even more impressive at 155%. Surging exports and a booming trade surplus have also helped bolster the Korean won (USDKRW) which has now increased by 5% since its record low in July.
Last week, Goldman's regional equity strategist for Asia Pacific, Tim Moe, published a "positive strategic review" in which he tried to ignore the noise of the near 40% drawdown in the Korean market and assess the fundamentals. Moe cited projected earnings growth of 320% in 2026, 35% in 2027 and 20% in 2028 and then pointed to the miserly five times earnings multiple investors were paying for such growth.
Moe's central case is that "the memory cycle is likely to be stronger and last longer than previous ones given accelerating compute demand and deep supply shortages potentially to 2030, leading to strong pricing power and profitability that current market pricing does not reflect." With that, Moe reiterated his 12,000 target for the Kospi, with almost 100% upside.
It's not just a memory chip story either. Ian Chun, senior research analyst at Sands Capital with $56 billion under management, commented that industrial companies in Korea were set to benefit from the build-out of power infrastructure, grid modernization and nuclear energy. He highlighted names like Hyosung Heavy Industries (KR:298040) and Doosan Enerbility (KR:034020) as power equipment stocks reaping dividends from the AI backlogs.
After the record-breaking U.S. equity offering for SK Hynix (SKHY) on July 9, the blackout period for broker research expired Aug. 4 and since then a string of analysts have published buy recommendations on the stock, many of them quoting the low multiple of just over four times, according to FactSet, and the mean target price on the American depositary receipts is $230, compared to a closing price on Nasdaq Wednesday of $154.41.
The recovery in memory chip stocks has extended far beyond Samsung and SK Hynix. The Roundhill Memory exchange-traded fund DRAM has also rallied by a fifth since its July 30 low, while the Philadelphia Semiconductor Index SOX has made a similar move.
While the rebound in Korea has fundamental drivers it also has technical support too. On Jack Farley's Monetary Matters podcast aired Wednesday, well-regarded market technician Milton Berg. Berg highlighted Korean equities and semiconductor stocks in general, as having bottomed and showing upside potential.
Berg recommended exposure to the New York-listed iShares MSCI Korea ETF EWY and argued that "retail capitulation," when smaller individual investors give up on their long positions and liquidate en masse, is historically a bullish signal for stocks. It has been estimated that in June and July almost $1.5 billion of retail long positions were forcibly liquidated. That's the kind of capitulation Berg is talking about.
In pre-market trading Thursday iShares MSCI Korea ETf was 1% lower at $173.77 and SK Hynix ADRs were down 2% at $151.26.
-Jules Rimmer
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