South Korea 4Q26 Outlook: After the pullback, is the Korea equity story over?

	1H 2026	1H 2025	y-o-y
Revenue (in KRW trillion)	2,000.1	1,552.4	28.8%
Operating profit (in KRW trillion)	388.2	c. 109.4	254.2%
Net profit (in KRW trillion)	386.7	c. 89.3	333.3%
Operating margin	19.4%	7.1%	+12.4 ppt
Net margin	19.3%	5.8%	+13.6 ppt
Source: Korea Exchange. Data as of 30 June 2026.

The benefit to Korean equities from strong overseas AI demand may be larger than the market expected. Korea Exchange data show first-half revenue for KOSPI companies at KRW 2,000.1 trillion, up 28.8% y-o-y. Profit rose a much sharper 333.3%, so earnings did not simply scale with revenue. Operating leverage was released in parts of the market. Excluding SK hynix and Samsung Electronics, the rest still grew revenue 15% and profit 119.7%. The earnings recovery is broader than memory alone.

Table 2: Second-quarter results for SK hynix and Samsung Electronics

	Revenue	Revenue y-o-y growth	Operating margin
SK Hynix	KRW 79.3 trillion	256.8%	76.3%
Samsung Electronics	KRW 171.5 trillion	129.9%	52.2%
Source: Bloomberg L.P., iFAST Compilations. Data as of 30 June 2026.

SK Hynix’s revenue growth was a little below expectations, but it still accelerated from the prior quarter. The company remains a full beneficiary of the memory upcycle. The operating margin rose further to 76.3%. With revenue expanding faster, a larger share is converting into profit and cash, which supports the capital-spending plan. The high margin reflects both elevated memory prices and SK hynix’s pricing power as the industry leader while the supply-demand gap remains wide. That leaves more room in talks with major customers.

Samsung Electronics also posted strong revenue growth, led by semiconductors. Consumer electronics used to be the core business. AI investment has pushed Samsung’s memory shipments to a record and lifted the group operating margin from a low near 10% to 52.2%. As the mix has shifted, earnings power has improved. Foundry should not be ignored. TSMC’s capacity is tight, and Samsung’s yields have improved, so more technology firms are willing to develop next-generation chips with Samsung. That makes the foundry business more stable.

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SK Hynix | The Indispensable Memory Giant in AI Era

Figure 1: HBM market share

SK hynix and Samsung Electronics still hold a large share of the global memory market. In HBM, used in high-performance data centers, Counterpoint puts the two firms at 83% combined, well above Micron’s 18%. The barrier is both recognition and technology, and it will not be crossed quickly. Reports say CXMT has started producing HBM3E, but the technical gap with Korea remains. SK hynix and Samsung also locked in relationships with large technology firms at the start of this AI investment cycle. We do not think their competitive position is easily shaken at this stage.

Some investors worry that the memory cycle will not last. If AI build-out disappoints, or supply grows faster than demand, memory prices and volumes could fall. SK hynix and Samsung have locked demand and output through long-term agreements, and protect themselves with deposits, purchase commitments and price terms. By the second quarter SK hynix had LTAs with about ten companies. Prices reset with market conditions, so the firm can raise prices while memory stays expensive. Samsung has already received 25% of contracted deposits. That cash is extra support for the capital plan. The LTAs also cover 60% to 70% of capacity, which limits the risk of idle plant from over-expansion. Some contracts use a floor price, which reduces the revenue risk if memory prices fall.

As we have said before, memory is not the only growth story in Korean equities. In June the government launched the three mega-projects. The plan ties memory and AI data centers together. The two are bound, not separate. It also confirms that AI construction has strategic weight in Korea and sets a direction for the technology map.

Table 3: Investment plans at major Korean companies

Theme	Company	Plan
Memory	Samsung Electronics	Wafer fab in Gwangju
	SK hynix	Cheongju plant to expand NAND and HBM; semiconductor plants in the Yongin cluster and south-west Korea
AI data centers	SK Telecom	Plans a 15 GW data-center complex in Ulsan, including an AI data center with AWS
	Naver	Expanding the Sejong data center with NVIDIA and Brookfield
	Samsung SDS	Leading the national AI computing-center project with Naver Cloud, Samsung C&T, Kakao and KT
Source: Company news, iFAST Compilations.

Under that direction, Korea’s main technology firms are investing in AI data centers. Each project needs a large amount of hardware. SK hynix and Samsung, as the domestic memory makers, should benefit directly. Some projects also involve NVIDIA and AWS. That gives Korean firms new partnerships and raises Korea’s place in the global AI chain. Over time, as the infrastructure base fills out, the growth driver can widen from the memory cycle alone to a fuller AI supply chain.

Most of these plans do not depend entirely on the capital-spending pace of overseas technology firms. Some are led by the Korean government or advanced with policy support. Korean hardware firms therefore get demand from global AI investment and a second source from domestic public and corporate spending. That improves revenue visibility and reduces the risk of relying too heavily on overseas investment.

Figure 2: Semiconductor and total exports of South Korea

Korean exports have repeatedly set records, led by semiconductors. The shortage has kept memory prices high. In September, semiconductor exports rose 263% y-o-y and total exports 83.5%. SK hynix and Samsung shares move with the market’s view of the memory cycle. The export data still show that downstream demand is strong.

The memory boom has also expanded industrial production. Korea’s S&P Global manufacturing PMI has stayed above 50 since the start of the year. Memory is only one part of manufacturing. As more domestic projects break ground, activity should stay firm. Strong exports and production do more than put the economy in expansion. They pull other activity with them. Higher semiconductor profits should lift wages and support consumption. Many AI projects sit outside central Seoul, so consumption and investment should spread to other regions over time.

The Bank of Korea raised its 2026 GDP growth forecast again in August, to 3.3%. That confirms the cycle at the macro level.

The Korea discount is still there, but the policy frame is filling in and the gap should narrow. This year the National Assembly passed the third revision of the Commercial Act, requiring existing treasury shares to be cancelled in full so minorities are not diluted. After the rule took effect, SK hynix in August bought back and cancelled KRW 40 trillion of shares. Other companies followed. With a lead firm setting the pace, the discount is starting to ease.

Figure 3: 12-Month P/E of KOSPI

Since we published the mid-2026 Korea outlook in June, Korean equities have had a clear pullback and at one point fell to 5,500. We have said before that the decline was driven more by sentiment and leverage than by damaged fundamentals. Strong listed-company results and still-firm economic data are the evidence for keeping a positive view.

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As of 14 October 2026, the KOSPI was still up 39.4% year to date, but the forward price-to-earnings ratio was only 4.6x, well below the 10-year average of 10.1x. With profit growth both proven and expected to stay strong, the price has not fully reflected the potential. Leverage in single stocks and in the KOSPI has also amplified moves, and circuit-breaker frequency rose sharply this year. From June, regulators and the Korea Exchange rolled out rules to stop leverage rising further, including a higher initial-margin threshold and a pause on new single-stock leveraged and inverse products. Tighter rules, together with the June semiconductor sell-off, put the market through a painful stretch. Excess leverage has since eased. KOFIA data show margin-loan balances at about KRW 26.1 trillion in October, down from KRW 38.8 trillion in June. Less leverage means the earlier heat is unlikely to return. Over a longer horizon, the advance is healthier. The lower valuation is also an entry point for investors who care about long-term value.

We do not change our view of Korean equities because the price has moved. With fundamentals still strong, we keep the 4-star rating, very attractive. The target by end-2028 is 10,958, 82.4% upside.

Table 4: 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	24.1	9.0	7.6	7.1
Dividend yield	1.1%	3.0%	3.6%	3.8%
Target Price at the end of 2028 (Based on 13x Forward P/E)				10,958
Potential upside				82.4%
Source: Bloomberg L.P., iFAST Compilations. Data as of 14 October 2026.

Figure 4: KOSPI EPS forecasts 

Table 5: Related Products

Product Recommendations
South Korea	Franklin FTSE South Korea ETF (NYSE: FLKR) iFAST Xtrackers MSCI Korea UCITS Index ETF (SGX: KOR) LionGlobal Korea Fund 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.
Asia Semiconductors	Global X Asia Semiconductor ETF (HKEX: 3119)