The South Korean stock market is experiencing a historic rally. Fueled by a triple combination of drivers—the AI-driven super-cycle in memory chips, the ongoing compression of the "Korea discount," and supportive macroeconomic policies—the Korea Composite Stock Price Index (Kospi) has surged nearly 50% year-to-date, making it the best-performing major global equity market.

On Thursday, the Kospi closed above 6300 points for the first time, recording gains in 10 of the past 11 trading sessions and consecutively refreshing its all-time high. Deutsche Bank strategist Jim Reid described it as "the most extraordinary equity market of 2026," noting that such gains "usually take years or even decades, not weeks." Goldman Sachs had previously raised its year-end target for the Kospi to 5700 points, but the index surpassed this level within a week.

The immediate catalyst for this surge is the sharp vertical rise in memory chip prices—hyperscale cloud providers are aggressively purchasing all available DRAM and HBM chips. Samsung Electronics and SK Hynix, which together account for approximately 40% of the Kospi's total market capitalization, have seen their shares surge 82.5% and 69.8% this year, respectively.

Meanwhile, as previously highlighted, South Korean President Yoon Suk Yeol, drawing on his personal experience as a retail investor who incurred losses, has initiated aggressive financial reforms since taking office in June of last year. These measures, including strengthening board accountability, reforming dividend taxes, and cracking down on market violations, have further amplified the current market upswing.

AI Memory Super-Cycle: The Core Engine of the Rally The most direct driver of the Kospi's explosive rise is the surging global demand for memory chips, fueled by AI infrastructure build-out.

AI model training and inference are extremely intensive in their consumption of DRAM and High Bandwidth Memory (HBM). Hyperscale cloud providers are stockpiling chips regardless of cost, pushing memory prices nearly vertically higher. As a core node in the global memory supply chain, South Korea is the primary beneficiary of this demand boom.

Samsung Electronics and SK Hynix are the unequivocal protagonists of this rally. The two companies collectively represent about 40% of the Kospi's market cap, with their year-to-date gains reaching 82.5% and 69.8%, respectively. Goldman Sachs forecasts a remarkable 75% earnings per share growth for South Korea in 2026, noting it is "highly concentrated in two names," and subsequently raised its Kospi year-end target—a target the index has already left far behind.

Deutsche Bank noted that investors are pricing in stronger demand, firmer pricing, and longer upgrade cycles, with the chip sector leading the entire index higher. Notably, despite turbulence in other global markets, the Kospi has continued its independent ascent, consistently setting new records.

Compressing the "Korea Discount": Governance Reforms Reshape Valuation Logic According to Deutsche Bank, memory chips are only half the story. The other half comes from the systematic repair of the long-standing structural discount applied to South Korean capital markets.

The South Korean stock market has long suffered from a valuation discount due to corporate governance issues—controlling shareholders' interests superseding those of minority shareholders, complex cross-shareholding structures, and weak board accountability mechanisms. This "Korea discount" has historically placed South Korean equities in the bottom third of global valuation rankings.

It has been noted that President Yoon's personal history provides a unique backdrop for these reforms. Media reports citing sources indicate that he once engaged in day trading as a side venture, "lost everything," and attributed his losses to controlling shareholders repeatedly eroding minority investor value through unfair practices. This experience became a core motivation for his reform drive.

Since taking office in June last year, Yoon has pushed a series of aggressive measures: revising fiduciary duty scopes to strengthen board accountability, reforming dividend taxes to encourage payouts, expanding enforcement resources to combat market violations, and publishing a roadmap aimed at achieving MSCI developed market status. Namuh Rhee, Chairman of the Korea Corporate Governance Forum, stated, "Every promise from previous administrations was disappointing, but this time is different."

Mixo Das, Head of Korea Equity Strategy at J.P. Morgan, expressed a more cautious view, noting, "Reforms are important and do help valuations, but to say the Kospi rose to 5000 solely because of government policy probably overstates the impact."

Macroeconomic Tailwinds: Central Bank Accommodation and Improved Growth Outlook The third driving force comes from supportive macroeconomic conditions.

The Bank of Korea recently upgraded its economic growth forecast and explicitly stated it does not anticipate adjusting its policy stance for the next six months, maintaining an accommodative monetary environment.

This stance provides strong liquidity support for equities, even as rising Seoul housing prices pose some challenges for policymakers. Deutsche Bank economist Juliana Lee holds a more optimistic view on the Korean economy than the market consensus.

Taking a longer-term perspective, this market recovery holds historical significance. Deutsche Bank data shows that the Kospi only truly surpassed its previous all-time high from March 1989 in September of last year—a full 36 years after that peak.

Asset Reallocation: The End of the Real Estate Era? It is noteworthy that this stock market surge is quietly altering the wealth allocation logic of South Korean households: reforms are shifting wealth perceptions away from over-concentration in assets towards financial investment.

Real estate previously accounted for nearly three-quarters of South Korean household assets. Peter S. Kim, Global Investment Strategist at KB Securities, stated, "The over-concentration in real estate relative to financial assets is set to reverse; this is one of the most profound trends in Korea over the next decade."

A recent report from KB Financial Group also indicated that high-net-worth individuals now prioritize domestic real estate and stocks equally—a rare signal of rising market interest.

President Yoon has personally endorsed the stock market through action—purchasing domestic equity ETFs worth 40 million won (approximately $27,600) days before the June election last year and pledging a monthly investment of 1 million won upon election. By last September, these investments had yielded a 26.4% return.

This rally has also earned Yoon a reputation as a "folk hero" among South Korea's 14 million retail investors. According to a Gallup Korea survey, his approval rating rose to 63% in mid-February, a high not seen in over three months.

Risks Remain: Bubble Warnings and Structural Concerns However, Deutsche Bank's Jim Reid has issued a clear warning.

Applying Deutsche Bank's long-term valuation framework, the rapid ascent of the South Korean market has pushed it from the "undervalued" camp into the "overvalued" camp. Reid wrote, "Over the long run, valuations win out, and this shift is one to be wary of."

A more immediate risk lies in the rally's heavy dependence on continued memory price increases. Should memory prices reverse, Samsung and SK Hynix would be the first affected, potentially triggering a sharp correction in the Kospi and possibly forcing the Bank of Korea into a reactive market rescue.

Macroeconomic vulnerabilities also warrant attention. The South Korean economy contracted in the fourth quarter, and its export-oriented structure makes it highly sensitive to global demand shocks. South Korean households carry one of the highest debt burdens globally, which President Yoon himself has called a "ticking time bomb."

Simultaneously, some retail investors remain cautious about the domestic market, with capital continuing to flow out and pouring into US equities at a record pace, further pressuring the Korean won.