Beyond AI: A Broader re-rating of Korean equities is under way!

Korea is emerging from the political turmoil that followed former President Yoon Suk Yeol’s declaration of martial law in December 2024 and his subsequent removal from office. Growth has since picked up, and the stock market has rebounded strongly, led by AI, even after the recent pullback.

When investors think of Korean equities, they think of semiconductors, and for good reason: Samsung Electronics and SK hynix are two of the world’s leading memory makers. But we think the market is missing the rest of the story. The AI boom is already reaching beyond chips, through forecast record tax revenue and rising household incomes, while governance reform is narrowing the Korea discount.

We believe a much wider part of the market stands to benefit.

The macro data say the upcycle has started

GDP rose 3.7% y-o-y in the second quarter. That is a touch below the 3.8% gain in the first quarter, but still well above the 1% average across the four quarters of last year. Memory, the segment markets have been watching, has been the main driver of growth this year. On the trade side, semiconductor exports reached USD 340.35 billion in the year to September. The shortage has pushed DRAM and NAND prices to record highs and, with overseas technology firms still expanding capital-spending plans, memory exports are rising in both volume and price. That has lifted Korean exports as a whole.

Figure 1: South Korea quarterly GDP y-o-y growth

The rise in export orders has also expanded production. Korea’s S&P Global manufacturing PMI has stayed above the 50 expansion line all year, so factory activity has remained firm. Memory is the clearest expression of Korea’s advanced manufacturing to the rest of the world. As Korea’s place in the AI supply chain has kept rising, AI has shifted from a pure export product to an engine of national investment. Three investment plans, advanced jointly by the government and the large technology groups, extend that map beyond the capital region, to Yongin, Gwangju and other sites. The construction cycle for plants and data centers should pull local construction, production, consumption and property with it, so the AI gain spreads through the economy and, over time, supports a more balanced development across regions.

Figure 2: South Korea Real Private Consumption y-o-y Growth

Exports are not the only driver of GDP. Statistics Korea says average monthly household income rose 4.5% y-o-y through the second quarter, and real income rose 1.5%, so household income is improving. Korea is a manufacturing and technology economy, and an important hardware supplier in Asia’s semiconductor chain. A surge in downstream demand, together with better manufacturing and export data, has laid a base for the recovery and produced a relatively strong rise in income. The agency also notes that the quintile income gap has fallen to the lowest level since the series began. That should lift the marginal propensity to consume among lower- and middle-income households and support domestic spending. The equity market has risen steadily this year, and the wealth effect from higher asset values is a further help to consumption. As a result, since September last year, real spending by Korea’s private sector has stayed above 2% y-o-y, a sign that household consumption is repairing.

The AI boom has delivered record tax revenue, and the government is putting it to work

In September the government published a new forecast. Driven by the semiconductor boom, national tax revenue in 2026 is projected at KRW 478.6 trillion, a record. Record profits at SK hynix and Samsung Electronics are expected to bring the authorities a sizable share of that income. Bonuses and special dividends also lift personal income tax, a second channel into revenue. 

The authorities say the surplus will go mainly into the Future Response Fund. Under the Ministry of Planning and Budget’s 2027 budget proposal of 1 September, the fund is sized at KRW 162.3 trillion, of which KRW 45.4 trillion will go to youth, growth engines, regions, and education and talent. A further KRW 21.3 trillion is set aside for semiconductors, physical AI and AI data centers. Profits concentrated in a few companies can therefore reach a wider set of sectors later, through tax revenue and the budget.

AI investment therefore means more for the Korean economy than the profit growth of two memory makers, and it is already passing through to other activities. With export orders rising, a positive loop is taking shape: the export boom is turning into a real expansion of corporate investment capacity and household purchasing power, and tax revenue is flowing back into AI construction and support for domestic demand. The economic case is becoming easier to stand behind.

The value-up programme is narrowing the Korea discount

For years, Korean companies have traded at a discount to global peers, a gap known as the Korea discount. It reflects weak governance, which has meant low shareholder returns, and group structures that scatter listings across too many vehicles.

Korea’s value-up programme is changing that. It uses a simple test: companies are ranked within their industry by price-to-book, which compares a company’s market value with its net assets. A KOSPI firm in the bottom 25% of its industry for three straight years is named on a public list, which puts pressure on management. A firm can avoid being named by filing a value-up plan with the exchange, setting out how it plans to raise returns to shareholders. As of October 2026, about 70% of KOSPI listings still trade below 1x book, meaning the market values them at less than their net assets, so the room to lift value is wide.

The second reform targets those group structures. Spinning subsidiaries out of the same group is common, and it has weighed on overall firm value. In July the Financial Services Commission issued guidance banning further duplicate listings: a listed parent may not list an unlisted subsidiary it already controls. Subsidiaries that are already listed are not affected, so the rule does not fix existing structures, but it prevents new ones and signals that regulators intend to protect minority shareholders.

As existing value-up plans are carried out, the large firms are also setting a benchmark for others to follow. In August SK hynix ran the largest buyback and cancellation by a Korean listed company, at KRW 40 trillion. That fits the third revision of the Commercial Act, which requires repurchased treasury shares to be cancelled in full, so minorities are not diluted by the use of treasury stock. After SK hynix, other listed companies, including KT&G and SNT Motiv, did the same. The amounts are far smaller, but they suggest the new rules are starting to change behaviour, with the largest company setting the pace.

Financials benefit from both the macro recovery and value-up

KOSPI is still led by technology and manufacturing companies. In other mainstream indices the mix is different. Financials are 10.3% of the MSCI Korea 20/35 Index, and KB Financial, Shinhan Financial and Hana Financial account for the larger share of that weight.

Table 1: First-half profit at the major financial groups

Figure 3: First-half 2026 revenue at three representative companies

All three grew first-half revenue by more than 20% y-o-y. HD Hyundai Heavy Industries was the standout, at 53.7%. The gains came mainly from defense equipment, as deliveries of weapons and naval ships rose. Higher defense demand is already showing up in the financial results. A larger order book also makes revenue easier to see, and supports the earnings repair in Korean equities from another direction.

To strengthen independent operational control, the Lee Jae-myung government has raised the requirement on the military. The defense budget next year is planned to rise 8.2% to KRW 73.3 trillion, the largest increase on record. Demand is not only domestic. Overseas demand for the Korean defense industry is still rising. SIPRI ranks Korea as the world’s fourth-largest arms exporter in 2025, the first time it has reached that place. With geopolitics still unstable, equipment that costs less but still performs adequately is winning favour abroad.

Cheongung-II, which Hanwha Aerospace helps produce, recorded a 96% interception rate in the Middle East war. That performance led the UAE to ask Korea to bring the order forward, a sign of solid foreign demand. In September Hanwha Ocean was also named preferred partner for the Thai navy’s next-generation frigate, so the equipment is gaining recognition in stages. Export growth may not be as strong as semiconductors, but this is a line of growth fully independent of AI construction, and it opens a new engine for Korea.

This is only the start of the re-rating

This note sets out the investment case for Korea beyond AI. While the market remains focused on semiconductors and AI infrastructure, other forces are at work in Korea. A clear macro recovery, record tax revenues, a structural narrowing of the Korea discount, and a set of catalysts independent of the technology capex cycle are all moving on their own drivers. Together, they support a broader re-rating of Korean equities.

The pieces are not separate. They reinforce each other. Growth and the expansion of tax revenue give industrial investment a fiscal backstop. The value-up programme keeps closing the valuation discount, and better earnings make the policy more credible by giving companies the means to pay shareholders. The upward re-rating in the KOSPI therefore does not rest on a single story: it draws on wider sources of profit and a better system of shareholder returns.

And this has only just begun. The KOSPI forward price-to-earnings ratio is still more than one standard deviation below its historical average, and we think the market has not fully priced the combined effect of the drivers we have highlighted. As such, we leave our KOSPI price target unchanged, with upside potential of 65.4% as of 8 October 2026.

Korea’s re-rating is no longer just a memory-chip story. Investors who want broader exposure to the Korean equity market can consider the Korea-themed funds and ETFs listed in Table 3.

Figure 4: 12-Month forward P/E of KOSPI

Table 2: Valuation and EPS forecast of KOSPI

	2025A	2026E	2027E	2028E
EPS (KRW)	248.9	664.9	794.6	842.9
EPS growth rate	19.4%	167.2%	19.5%	6.1%
P/E ratio	26.6	10.0	8.3	7.9
Dividend yield	1.0%	2.7%	3.2%	3.4%
Target Price at the end of 2028 (Based on 13x Forward P/E)				10,958
Potential upside				65.4%
Source: Bloomberg L.P., iFAST Compilations. Data as of 8 October 2026.

Figure 5: KOSPI EPS forecasts

The first SGX-listed gateway to Korean equity market is here!

For Singapore investors, accessing Korea has typically required investing through overseas markets. Direct investment requires an overseas brokerage account, while US- and European-listed ETFs trade in foreign currencies and during overseas market hours. Prior to KOR, there were no pure, single-market ETFs listed on SGX providing dedicated exposure to Korea.

iFAST, in partnership with DWS Asset Management, is introducing the iFAST Xtrackers MSCI Korea UCITS Index ETF (SGX: KOR), the first SGX-listed ETF providing dedicated exposure to the Korea equity market. KOR trades in SGD during Singapore market hours, eliminating the need for manual currency conversion at the point of trade. Its trading hours also overlap with the Korean market, allowing market makers to reference live underlying share prices when pricing the ETF. This reduces uncertainty in estimating fair value and can support tighter bid/ask spreads while the underlying markets are open. A one-share board lot also allows investors to build positions incrementally. Following listing, KOR is expected to be eligible for SRS, providing an additional avenue for investors to deploy SRS monies into long-term exposure to Korea.

The Initial Offer Period (IOP) for the  iFAST Xtrackers MSCI Korea UCITS Index ETF (SGX: KOR) runs from October 1 to October 14, 2026, with each share priced at SGD 1.

Related article: Korea and Taiwan arrive on SGX: the first ETFs for both ends of the AI supply chain

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report — including all investment theses, ratings, price targets and conclusions — has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.