By Jules Rimmer
South Korea's equity index - up 44% in 2026 - is the world's best performing stock market
Soutk Korea's stock market and its economy are booming
The ambitious stock-market target put in place by South Korea's new president last summer is in retrospect looking too cautious.
South Korean President Lee Jae Myung came to power and made an ambitious pledge of &#34;KOSPI 5000&#34; for the country's benchmark equity index. The target seemed wildly bullish at the time with the stock market languishing around the 2,700 level. In Wednesday trading, though, after five consecutive days of gains, the KOSPI breached 6,000 for the first time.
The Korean market KR:180721 has now rallied 130% in the last twelve months and 44% in just the first eight weeks of 2026. To some extent, South Korea is a memory chip export story, and given the demand from U.S. AI companies that business has been booming.
The U.S.-listed iShares MSCI South Korea ETF EWY has gained 49% just this year.
South Korea's President Lee Jae Myung
Retail exuberance is as buoyant as it could be. Individual traders, known as &#34;ants,&#34; have 100 million equity accounts open, almost two for every person in the country, and are pouring money into stocks and leveraged exchange-traded funds that supercharge returns. Around one third of the population now plays the market, compared to just 7% before the pandemic, raising concerns about excessive speculative activity.
A year ago, Lee was pledging to eliminate the low valuation multiples attached to Korean stocks owing to decades of mistreatment of minority shareholders by the dominant chaebols. Reforms to improve corporate governance, lift dividend payouts and protect minorities now see the market trading on a premium to emerging markets.
The KOSPI now trades around 21 times earnings for the last twelve months versus 17 times for emerging markets EEM as a whole, according to FactSet.
Franklin Templeton's Director of ETF investment strategy, Marcus Weyerer, said to justify a full re-rating of the market, the current administration must sustain its policy stability and its governance reform initiatives. &#34;Policy must become behavior,&#34; he said.
Fixed-income analysts Chun Him Cheung, David Hauner and Claudio Irigoyen cited four reasons why the Korean won has further to run.
First, of the &#34;four reasons to ride the Korean bull&#34; the note brings up is that memory chip super-cycle. January 2026 exports hit $65 billion, up 34% from a year ago, and this resulted in a trade surplus of $8.74 billion. Bank of America suggests this structural chip demand and supply tightness could accelerate further depending on the sustainability of the U.S. AI capex cycle.
Relative to the past, Korea's current export boom is very tied to the rising price and volume of memory chip exports
Another accelerant could be the shift in the Bank of Korea's stance towards hawkish. After a long period of decline against the dollar DXY, the Korean won (USDKRW) has arrested that trend this year, boosted by the export data, and with 2026 growth expectations raised from 1.6% to 1.8% in November, the odds of further rate cuts are slim, says Bank of America. In fact, two hikes are priced in for 2026, narrowing the differential in rates compared to America and thereby supporting the currency.
Bank of America also highlighted a series of measures taken by the South Korean government to bolster the won such as redirecting national pension fund flows towards the domestic markets. Inclusion in the World Government Bond Index from April of this year should also attract passive inflows.
Lastly, Bank of America points out that the recent stabilization in the yen (USDJPY) with the advent of president Takaichi in Japan has removed a key drag on the won. It has reduced the pressure on the Bank of Korea to devalue its currency to remain competitive in export markets.
A long way from the Korean discount of the past, South Korea now numbers among the ten most expensive stock markets in the world on a price earnings ratio
-Jules Rimmer
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(END) Dow Jones Newswires
02-25-26 0549ET

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South Korea's stock market has surged 44% in 2026, making it the world's best-performing market. The KOSPI index recently surpassed 6,000, driven by strong demand for memory chips, particularly from U.S. AI companies. Retail investor participation has skyrocketed, with one-third of the population now investing in stocks. The market is trading at a premium compared to emerging markets, and analysts cite factors like a memory chip super-cycle and government measures to support the won as reasons for continued growth. South Korea is now among the ten most expensive stock markets globally based on price-to-earnings ratios.

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