South Korea's booming revival isn't over yet

The South Korean stock market boomed in 2025, but investors may not have missed their chance to cash in on the tech-led revival.

The Kospi index enjoyed a world-beating rally of 76% last year, fuelled by its exposure to the inexorable march of artificial intelligence (AI) and technology stocks.

The biggest winners of the year were Samsung Electronics, up 143%, and SK Hynix, which was up a staggering 242%, as they took advantage of their place in the semiconductor supply chain that is crucial to powering AI.

The companies have remained winners this year too, as the Kospi has managed to hit more new highs with a 20% gain since the start of 2026, and Aberdeen Asia Focus (AAS) manager Gabriel Sacks believes the strong start can continue.

He noted the poor performance of Korea in 2024 when the Kospi fell more than 5%, so 2025’s gains came from a ‘low base’.

‘We are cautious when see such strength in share prices but Korea should be an area of focus for another year,’ Sacks said.

Although the South Korean market is cyclical in nature and ‘prone to big upswings and downswings’, Sacks said demand for industrials with export-heavy products such as semiconductors will ‘not be a short-lived story’.

The small-cap bias of AAS means Sacks does not hold SK Hynix or Samsung Electronics, but that hasn’t held the £646m portfolio back.

Over the past year, AAS shares have jumped 32% and its net asset value (NAV) has increased 24%, beating the 18.3% share price rise and 12.4% NAV return from the average fund in the Asia Pacific Smaller Companies sector.

A ‘conscious decision’ to increase exposure to South Korea, which now makes up 12% of the portfolio, helped drive returns, with Sacks focusing on the ‘ecosystem’ behind the likes of SK Hynix and Samsung Electronics.

This includes top 10 holding Hansol Chemical, which supplies specialty chemicals used in semiconductors and electric vehicles, such as hydrogen peroxide solution to clean chips.

‘Hansol is linked to capex in the memory cycle,’ said Sacks. ‘It is a very cash generative business and plugged into the semiconductor ecosystem.’

Sacks is still finding opportunities in the technology space and also within shipping, a sector in which he has two holdings.

‘Shipping is a sector that is cyclical and not the highest quality, but it was pretty bombed-out and Korea is very good at it – there is strong demand and the pricing is increasing with a shifting in supply chains from China,’ he said.

Hiren Dasani, manager of Ashoka WhiteOak Emerging Markets (AWEM), is also looking beyond South Korea’s semiconductor sector and finding ‘interesting opportunities in Korean industrial stocks such as transformer and defence equipment makers’.

Corporate governance in focus

It is not only the tech boom fuelling South Korea’s recovery, a wide-ranging reform of corporate governance has also bolstered faith in the region. Akin to the market-changing reforms implemented in Japan under former prime minister Shinzo Abe’s ‘Abenomics’ policy, South Korea’s ‘Value-Up’ program is helping overcome the long-suffered ‘Korea discount’.

It is encouraging companies to be more transparent, improve their capital efficiency, and return more cash to shareholders.

‘Over the past 18 months, Korean government and regulators have taken important steps to improve corporate governance under Value-Up such as greater accountability of independent directors, more incentives for companies to pay higher dividends,’ Dasani said.

‘We believe the Value-Up theme is here to stay and will continue to play an important role in further improving Korea market valuations.’

The South Korean market is no stranger to outsized rallies, and prior to the current AI boom it enjoyed a sustained rally during the Covid pandemic fuelled by biotech. Sacks said while the biotech rally was built on hype over new drugs and vaccines, there is greater longevity in the current market strength that is built on earnings not speculation.

On top of this, the current rally is being sustained by ‘fundamental change at a corporate governance level’.

‘Value-Up is throwing up new opportunities,’ Sacks said, adding that banks have already benefited by being able to increase their dividend payouts after many years of being constrained by regulation.

Insurance could also be a beneficiary as companies ‘start to unwind cross-holdings’ that have kept companies in the control of a small number of family shareholders, known as ‘chaebols’.

The Value-Up programme has provided a solid backdrop for a Korean revival and Sacks has moved to his lowest ever underweight to the region of around 4-5%.

One reason for the persistent underweight is that ‘governance has historically been shoddy, particularly in the smaller-cap end of the market’ blighted by poor reporting, directors not being accountable to minority shareholders, cross-holding, and high leverage.

‘We have been stung a few times, so we have a high bar for South Korea [investments],’ he said. ‘But over the last few years we are finding more opportunities.’

Fresh tariff threats

While the Kospi is a global bright spot, it does not reflect the entire story in South Korea. Fourth quarter economic growth came in cooler than expected at 1.5% as constructions and exports fell. On a quarterly basis, GDP contracted 0.3% − the steepest fall since the end of 2022.

Sacks has reduced his underweight to South Korea on the back of technology exposure, but the underweight still remains because ‘from a domestic point of view, there is not a lot of attractive opportunities because growth is very sluggish – it is not a clear emerging markets story’.

It is also battling a fresh wave of tariff threats from US president Donald Trump as punishment for delaying the implementation of the previously agreed trade deal.

He has warned tariffs on South Korean exports will rise from 15% to 25%, causing a diplomatic scrabble by South Korea to smooth over relations with the world’s largest economy.

Sacks said Trump’s posturing has been mostly ‘drowned out by the rally’ in the stock market this month.

‘There is a risk that it escalates and becomes a problem, but it is likely more of a negotiation issue,’ he said.

South Korea committed ‘big numbers of investment into the US’ – pledging to make $350bn of investment in the country - which may have caused some ‘political push-back locally’ when the terms of trade deals between the US and other countries were agreed.

‘The fact memory [chips] are an important part of AI story is a good bargaining chip [for South Korea],’ said Sacks.