- South Korea’s semiconductor sector is likely to face limited impact, as it exports few chips directly to the US. Moreover, Samsung Electronics and SK Hynix are already cooperating by building factories in the US - a key factor that could support potential tariff exemptions.
- Collaboration in shipbuilding is gaining traction, with the US and South Korea working together to “Make American shipbuilding great again”. This partnership could also serve as a bargaining chip in tariff negotiations.
- The EV sector, however, faces greater headwinds, as new tariffs directly target the industry. At the same time, Chinese EV players are accelerating their global expansion, intensifying competitive pressures.
- The KOSPI Index is projected to reach KRW3,983 by FY2027, implying a 25.0% upside after the sharp rally. Accordingly, we are revising South Korea’s rating from 4.0 stars “Very Attractive” to 3.5 stars “Attractive” to reflect the more moderate upside potential.
The US and South Korea reached a tariff agreement on 30 July 2025, ultimately reducing tariffs on South Korean goods from 25% to 15%. During the negotiations, South Korea proposed the “Make American Shipbuilding Great Again” (MASGA) plan, which is expected to be worth hundreds of billions of dollars. Why is MASGA so important to the United States? How will tariffs affect South Korean semiconductors?
Tariffs are expected to have limited impact on South Korean semiconductors
Following the post-Liberation Day rally, the stock prices of South Korea's two major semiconductor giants, Samsung Electronics and SK Hynix, have recently adjusted, partly due to President Trump's renewed threat of additional tariffs on semiconductors in the future. We believe this is merely a temporary drag on investment sentiment and will have limited impact on South Korean semiconductor companies.
In fact, while South Korea's semiconductor exports are primarily driven by demand from the US, a small portion of these exports are directly shipped from South Korea to the US. The production process for high-end chips often requires a tightly integrated global supply chain. For example, South Korea's high-bandwidth memory (HBM) is typically shipped to Taiwan for packaging before being transported to its final destination. According to statistics from the first half of 2025, South Korea's top three semiconductor export destinations are mainland China and Hong Kong (44%), ASEAN (27%), and Taiwan (23%), while the United States accounts for only 0.7%. Therefore, unless South Korean chips exported to the United States from other countries are subject to additional tariffs, we believe that the additional tariffs will have limited direct impact on South Korea's two major semiconductor companies.
Additionally, both Samsung Electronics and SK Hynix have demonstrated a cooperative attitude in line with President Trump's vision of bringing industries back to the US. Samsung Electronics has established factories in Austin and Taylor, Texas, to fulfill US orders, with products used in data centers, automotive parts, and telephones. Earlier, it announced an investment of USD37 billion in Austin (for the fully depleted insulator-on-silicon process technology) and Taylor, Texas (for advanced logic technology, including 4-nanometer and 2-nanometer processes and R&D), which will create 3,500 jobs in both locations. SK Hynix also plans to invest USD3.87 billion in Indiana to establish a packaging factory for mass-producing HBM chips, creating nearly 1,000 jobs in the US. This could potentially serve as one of the grounds for seeking an exemption from semiconductor tariffs in the future.
For chip demand, the increasing application of artificial intelligence will continue to stimulate technology companies to increase capital expenditures on equipment purchases. South Korea's semiconductor and information technology exports have continued to hit new highs this year (Figure 1). Samsung Electronics secured another important contract worth USD16.5 billion in July to produce artificial intelligence chips for Tesla at its new factory in Texas, with Samsung Electronics' profit growth expected to reach 30% next year. However, due to weakened demand for home appliances and personal computers this year, profits are expected to decline. As the largest weighting stock in the KOSPI Index at approximately 17%, Samsung Electronics is expected to drive the South Korean stock market to new highs in the future.
Table 1: Earnings Growth Expectation of Samsung Electronics and SK Hynix
|
2025E |
2026E |
2027E |
|
|
Samsung Electronics |
-19.74% |
30.19% |
9.84% |
|
SK Hynix |
62.17% |
11.97% |
7.35% |
|
Source: Bloomberg and iFAST Compilation Date as of 19 Aug 2025 |
|||
Figure 1: South Korea’s Export by Product
Source: Citi Research, CEIC Data Company Limited
MASGA Promotes US-South Korea Strategic Partnership
The MASGA proposal is a strategic initiative aimed at revitalising the US shipbuilding industry to strengthen national security, promote economic prosperity, and counter China's dominant position in the global shipping market. As of 2024, China is the world's largest shipbuilder, accounting for more than half of global production, while South Korea ranks second.
Figure 2: Number of New Ships Built by different countries in 2024
Source: The Korea Economic Daily
The plan is a key bargaining chip in South Korea's trade negotiations with the US. It also represents South Korea's commitment to providing technical and industrial cooperation at a time when the Trump administration is seeking to revitalise the US shipbuilding industry. The Center for Strategic and International Studies (CSIS) identified South Korea and Japan as key partners in its May report titled “Charting a Course for US Shipbuilding Cooperation with Northeast Asian Allies,” with South Korea receiving particular attention. The report outlines four main cooperation pathways: maintenance, repair, and overhaul (MRO) of US naval vessels by allied forces; Allied acquisition of US shipyards; Joint production of warships; and US purchase of warships built by allied shipyards.
Currently, South Korea's three major shipbuilding companies (HD Korea Shipbuilding & Offshore Engineering Co., Ltd., Hanwha Ocean, and Samsung Heavy Industries) have collaborated to establish a working group aimed at serving as a bridge between local shipbuilding companies and the government to coordinate the development of the MASGA project. We anticipate that this initiative will strengthen the partnership with the United States, thereby enhancing South Korea's bargaining power in tariff negotiations with the United States, while also benefiting domestic shipbuilding companies.
Table 2: Four Main Cooperation Pathways of MASGA
|
Cooperation |
Explanation |
|
Allied maintenance, repair, and overhaul (MRO) of US vessels |
US MRO cooperation with South Korea and Japan is not new, such as the contract won by Hanwha Ocean last year and the maintenance agreement signed between HD Hyundai and the US Navy. |
|
Allied acquisition of US shipyards |
This can increase productivity, enhance workforce skills, and reduce costs through bulk purchasing of materials |
|
Joint production of warships |
This could involve modular assembly, such as constructing the hull abroad and integrating weapons and propulsion systems at US shipyards. |
|
U.S. purchase of warships built by allied shipyards |
This could include using U.S. designs to build vessels abroad, jointly designing vessels with allied nations, or having allied nations simultaneously responsible for design and construction. |
The automotive industry is expected to continue facing pressure
Despite the recent reduction of US tariffs on South Korean automobile to 15%, the impact on South Korea's two major automakers remains significant. Hyundai Motor and Kia Motors both derive over 40% of their revenue from the US, making it their primary source of income (Figure 3). Although Hyundai operates factories in the US, its production capacity cannot fully meet US order volumes. Therefore, it is anticipated that orders exported to the US from regions outside the US (approximately 40%) will be subject to tariffs, significantly reducing the company's gross margin.
Furthermore, the pace of Chinese electric vehicle exports has accelerated faster than expected, intensifying global competition in the electric vehicle market. BYD's automobile exports for the first seven months of this year have already reached nearly 550,000 units, completing 70% of its annual export target. Due to the weakened demand for South Korean automobiles caused by the intense competitive landscape, it is anticipated that this sector's profits will decline this year. However, considering that the two major automakers account for only approximately 3% of the Seoul Composite Index, despite the automotive industry becoming a drag, the impact on the index's profits is expected to be limited.
Figure 3: Revenue by Regions of Hyundai Motor and Kia
Table 3: Earnings Growth Expectation of Hyundai Motor and Kia
|
2025E |
2026E |
2027E |
|
|
Hyundai Motor |
-24.34% |
1.28% |
4.83% |
|
Kia |
-9.51% |
1.07% |
6.60% |
|
Source: Bloomberg and iFAST Compilation Date as of 19 Aug 2025 |
|||
Investment Insight
South Korea's stock market has been the best-performing market globally over the past quarter and year-to-date, primarily due to policy-driven stimulus measures that have driven a rebound in stock valuations. Given that the KOSPI's price-to-earnings (P/E) ratio has returned to levels near its 20-year average, future gains in the index are expected to be driven primarily by corporate profit growth. Based on a reasonable P/E ratio of 11 times, the potential increase in the KOSPI is expected to be 25.7% by the end of 2027. In light of this, we have downgraded South Korea's star rating from 4.0 stars “Very Attractive” to 3.5 stars “Attractive.”
Looking ahead, while tariffs may dampen the forecast earnings of the two major automotive companies in the index, the sector accounts for only 3% of the index, so the negative impact is limited. For the two major South Korean semiconductor giants, we expect strong AI-related demand to continue driving chip order growth, offsetting the negative impact of tariffs.
Figure 4: KOSPI EPS Estimation
Figure 5: KOSPI PE
Table 4: Valuation of the KOSPI Index
|
South Korea (KOSPI Index) |
2024 |
2025E |
2026E |
2027E |
|
PE Ratio (X) |
13.9 |
11.6 |
9.9 |
8.8 |
|
Estimated Earnings Growth |
6.8% |
19.1% |
18.1% |
12.0% |
|
EPS |
229.9 |
273.9 |
323.4 |
362.1 |
|
Target Price (Based on fair PE ratio of 11X) |
3,983 |
|||
|
Upside Potential |
25.0% |
|||
|
Source: Bloomberg
Finance L.P., iFAST Compilations. |
||||
Table 5: Recommended Fund
|
Category |
Products |
|
UT |
|
|
ETF |
The Research Team is part of iFAST Financial Pte Ltd.
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