South Korea’s stock market has emerged as the world’s top performer in 2026, led by a powerful rally in technology names and broader shifts in investor sentiment. The benchmark KOSPI has risen 49.7% year to date.
Analysts at Deutsche Bank highlight that this pace of appreciation, which would normally unfold over a longer period, reflects three distinct forces aligning simultaneously.
1) AI-driven momentum in semiconductors
A primary driver has been heightened demand for memory chips tied to artificial intelligence infrastructure. South Korea occupies a central role in the global memory supply chain, and investors are pricing in stronger end-market demand, firmer pricing and an extended upgrade cycle for memory products. Market performance among major chipmakers has been pronounced: Samsung Electronics, the largest component of the KOSPI, is up 82.5% year to date, while SK Hynix, the index’s second-largest constituent, has gained 69.8%.
2) A narrowing of the long-standing Korea valuation discount
Deutsche Bank’s commentary points to improving credibility around corporate governance reforms. These developments have elevated expectations that capital allocation practices will improve and shareholder returns could increase. Historically, South Korea traded at a persistent valuation discount and, as of last year, ranked in the bottom third of global equity markets by valuation. The perceived narrowing of that discount has been an important element in the market’s rally.
3) Macro tailwinds and a steadier policy backdrop
Macro conditions have also turned supportive. Growth forecasts were upgraded by the Bank of Korea, and the central bank signaled that no policy change is expected over the next six months. Together, stronger growth expectations and a predictable policy environment have helped underpin investor confidence.
Caution on valuation
Deutsche Bank analysts caution that the rapid appreciation has shifted South Korea from the "cheap" half of markets into the "expensive" half when ranking global equity markets by valuation. They note that, over the long run, valuation tends to win out, making this change an important consideration for investors.
Investor tools referenced
The article also raised the question of whether 000660 is currently a bargain and referenced a fair value calculator that uses a mix of 17 industry valuation models to assess stocks.
Key takeaways
- South Korea’s KOSPI has surged 49.7% year to date, led by strong gains in major chipmakers.
- Semiconductor demand tied to AI infrastructure is a central driver, with Samsung Electronics up 82.5% and SK Hynix up 69.8% year to date.
- Improving confidence in corporate governance reforms and a steadier policy outlook from the Bank of Korea have supported the rally.
Risks and uncertainties
- The market’s shift from a valuation discount into the "expensive" half of global markets introduces valuation risk that could weigh on future returns.
- Expectations tied to corporate governance reforms are rising; there remains uncertainty over whether those reforms will fully translate into improved capital allocation and higher shareholder returns.
- While the Bank of Korea signaled no policy change over the next six months, any unexpected macro developments could alter the supportive policy backdrop that has helped drive sentiment.
Collectively, these factors show why South Korea’s market has been the standout performer in 2026, while also underscoring the importance of valuation and policy considerations for investors monitoring the rally.