South Korea’s stock market has experienced an extremely volatile year. From the beginning of 2026 through June 22, the KOSPI staged a powerful bull run, reaching an all-time high of 9,114.55 on June 22. However, Korean equities then entered a technical bear market, falling all the way to 5,593 on July 30, representing a 39% drawdown from the peak.
Since then, the KOSPI has rebounded sharply. By August 18, the index had recovered to 6,913, up 23% from its July low.
So why has the Korean stock market experienced such an extreme cycle of surge, collapse, and technical rebound?
Why did Korean stocks rally so strongly from the beginning of the year to June 22?
I believe there were two main reasons.
1. The AI supercycle
Since the beginning of the year, the global AI supply chain has entered a supercycle, with demand for computing infrastructure and data centers surging worldwide.
However, semiconductor manufacturing capacity remains concentrated among only a handful of companies. As a result, rapidly rising demand combined with relatively constrained supply has pushed up chip prices, which in turn has boosted the profitability of semiconductor companies such as Samsung Electronics and SK Hynix.
2. The Korean stock market is highly concentrated
Samsung Electronics and SK Hynix carry extremely large weights in the Korean equity market, together accounting for roughly 50% of the index.
In other words, the Korean market is heavily concentrated in semiconductors. When semiconductor stocks rise sharply, their gains have an amplified impact on the overall KOSPI, helping explain the explosive bull-market performance seen in the first half of the year.
Why did the KOSPI enter a bear market between June 22 and July 30?
I believe there were two main drivers.
1. Market sentiment cooled
The enormous amount of capital expenditure flowing into AI infrastructure caused investors to question whether AI and related industries could continue growing at such a rapid pace.
2. Competitive pressure from Chinese memory-chip makers
Growing competition from Chinese memory manufacturers such as CXMT has unsettled the AI trade in recent weeks. Over the longer term, stronger Chinese competition could pose a threat to the pricing power of leading global memory-chip producers.
These factors combined to create the extremely volatile market environment we have seen in Korean equities this year.
Is this still a good opportunity to enter the Korean market?
I believe the answer is yes.
Looking at the recent market performance, the KOSPI has already rebounded by more than 22% since July 30, meaning that it has technically re-entered a bull market. In my view, this sends two strong signals.
1. AI fundamentals remain solid
Major global technology companies continue to report massive AI-related spending in their latest earnings results. As a result, investor enthusiasm toward technology hardware stocks is beginning to return.
2. Foreign capital is returning, while other positive developments are emerging
Recent measures by the South Korean government to restrict leveraged ETFs linked to individual stocks, together with signs that investors are reducing margin debt, could help stabilize the market.
Meanwhile, Temasek is reportedly planning to invest directly in Samsung Electronics and SK Hynix through its internal investment team, which could provide another positive signal for the sector.
Therefore, from a long-term perspective, I remain bullish on Korean equities.
Recommended Korea ETFs
1. KORU
10-year annualized return: 4.26%
Expense ratio: 1.32%
Net assets: US$1.613 billion
KORU provides 3x daily leveraged exposure to South Korean equities, seeking to deliver three times the daily return of the MSCI Korea Index. Because of its leverage and daily reset mechanism, it is suitable only for very short-term trading.
$Direxion Daily MSCI South Korea Bull 3X Shares (KORU)$
2. EWY
10-year annualized return: 6.92%
Expense ratio: 0.59%
Net assets: US$28.16 billion
With assets of roughly US$29 billion and average daily trading volume of around 22 million shares, EWY offers the best liquidity among major Korea ETFs. It is suitable for short- to medium-term trading and for investors looking to gain broad exposure to the main themes driving the Korean market.
$iShares MSCI South Korea ETF (EWY)$
3. FLKR
10-year annualized return: 10.22%
Expense ratio: 0.09%
Net assets: US$1.591 billion
FLKR holds approximately 162 stocks and charges a significantly lower expense ratio than EWY. It is therefore more suitable for long-term investors and regular investment plans.
$Franklin FTSE South Korea ETF (FLKR)$
4. MKOR
10-year annualized return: 5.07%
Expense ratio: 0.79%
Net assets: US$140 million
MKOR reduces its concentration in SK Hynix and places greater emphasis on financials, industrial companies, and Korean mid-cap stocks. It is more suitable for investors who want exposure to South Korea without relying too heavily on the country’s two semiconductor giants.
Comments