South Korea Outlook 2026: Extending the memory supercycle

• South Korea’s equity market outperformed global peers with a 76% gain in 2025, largely fuelled by the semiconductor sector. The sustainability of this "memory supercycle" will be the critical determinant for market performance in 2026.

• As manufacturers shift capacity to High Bandwidth Memory (HBM) for AI, a shortage of "traditional" memory (for PCs and mobiles) has emerged, keeping prices high through 2027.

• New legislative amendments aim to narrow the "Korea Discount" by improving corporate transparency and forcing companies to increase shareholder returns via dividends and buybacks.

• The market retains a 3.5-star "Attractive" rating with a target of KWR 6,000 by the end of FY2027, representing a potential upside of 27%.

In 2025, Trump’s trade war became a key catalyst for global diversification, prompting countries to broaden trade partnerships in response to tariff pressures and to strengthen economic resilience. At the same time, emerging markets attracted significant manufacturing investment as global supply chains were restructured, supporting local economic growth.

From a market performance perspective, South Korea’s equity market significantly outperformed global peers, delivering a full-year gain of 76% (in KRW terms). This rally was largely driven by rapid developments in the semiconductor sector, particularly strong demand for memory products. Looking ahead to 2026, the sustainability of the memory supercycle will be a critical determinant of South Korea’s market performance.

Figure 1: Global major index returns (in Index Currency)

Memory Supercycle 

Samsung Electronics and SK Hynix, the two leading players in the memory industry, account for nearly 35% of the KOSPI Index. As global cloud service providers (CSPs) increase capital expenditure to build data centres, strong demand for memory has driven up the stock prices of both firms. Samsung Electronics' stock price rose 130%, while SK Hynix's stock price gained 278% last year.

Figure 2: Stock Performance

Samsung Electronics 

Samsung Electronics' 3Q25 growth was mainly driven by the Semiconductor DS division, which contributed over 40% of operating profits. DRAM prices rose 10% quarter-on-quarter, while HBM3E shipments surged 80%, pushing third-quarter operating profit up nearly 80% year-on-year to 7 trillion Korean Won.

Looking ahead to 2026, the company expects cloud service providers to continue expanding capital expenditures, upgrading memory to reduce latency and meet growing computing demands. On the supply side, industry inventories have fallen below normal levels, and memory prices are expected to continue rising. With strong demand for HBM, the company will focus on producing HBM4 products and significantly increase HBM shipments. However, due to the industry's supply shift toward HBM and server DRAM, mobile phones and computers may face memory shortages.

SK Hynix 

According to 3Q25 results, DRAM shipments and prices both recorded quarterly growth, and the company expects strong growth momentum for DRAM and NAND shipments in 2026.

Additionally, global demand for memory has expanded from HBM to all memory solutions. Although the company is expanding HBM supply, some customers are still seeking traditional memory solutions, and all HBM, DRAM, and NAND memory solutions for 2026 have already been sold out. In the short term, HBM supply remains insufficient to meet market demand, and future HBM revenue growth will depend on the company’s supply capacity.

Meanwhile, the company predicts that overall supply tightness may persist until 2027 and conservatively estimates an average HBM growth rate of up to 30% over the next five years. On the other hand, the stock prices of both companies are highly correlated with memory prices. Given that the current stock price rally reflects investors’ optimistic expectations for rising memory prices, whether memory prices can rise as anticipated by the market will be a key factor affecting stock performance.

Figure 3: NAND prices and stock performance

Memory market outlook 

Memory expected to remain in tight supply 

The training and inference processes of AI models heavily rely on computing resources, particularly advanced memory for handling data and complex algorithms. However, memory manufacturers are prioritising capacity shifts toward HBM production, leading to tight supplies of traditional memory for computers and mobile phones. Additionally, the number of customers seeking long-term agreements for traditional memory products is continuously increasing, reflecting strong market demand for traditional memory. Given the limited capacity and priority supply to server customers, computer and mobile phone manufacturers may not be able to obtain sufficient order allocations.

Overall, we believe that investments in AI infrastructure will continue to sustain the demand for advanced memory. Meanwhile, robust demand for traditional memory offers additional growth potential to the memory industry, thus preventing over-reliance on investment growth of data centres.

Figure 4: DRAM application breakdown

Micron (MU.US) expects the industry upcycle to continue 

Micron, as one of the three memory giants, expecting memory demand to exceed supply this year in its latest guidance. Although DRAM and NAND shipments are projected to grow 20% YoY in 2026, this supply is projected to meet only two-thirds of customers' medium-term demand, indicating that the supply shortage will persist. On the other hand, humanoid robot manufacturing requires up to 64-128GB DRAM and 1-2TB NAND for real-time decision-making, which makes robotics could become potential growth drivers beyond data centers.

Memory industry drives South Korean export growth 

Rising demand for memory is set to support South Korea’s economic growth. The KOSPI index is closely correlated with South Korean exports and typically leads export trends by about two months (Figure 5). Therefore, the strong performance of the KOSPI suggests that South Korean exports are likely to maintain their recovery momentum.

Figure 5: South Korean exports and the KOSPI Index

Korea Discount Expected to Narrow

The "Korea Discount" refers to the persistently low valuations of South Korean listed companies compared to their global peers. Foreign investors require higher risk premiums due to concerns over South Korean corporate governance and policy risks. However, since the new South Korean President Lee Jae Myung took office, the government have actively promoted reforms to enhance stock market performance. In the second half of 2025, the South Korean parliament passed amendments to the Commercial Act. Key measures include improving transparency in listed company governance and enhancing shareholder returns, including increasing dividend payout ratios and expanding stock repurchases. 

Although it is still in the early stages of structural reforms, as policies are gradually implemented, South Korean listed companies' dividend yields and stock repurchases are expected to improve. The ‘Korea Discount’ may continue to improve this year, increasing the investment attractiveness of South Korea market.

Investment Insights

In summary, the AI investment will drive strong demand for advanced memory (such as HBM). However, the priority for advanced memory will lead to supply shortage for traditional memory used in mobile phones and computers, which extends the memory industry’s upward cycle. On the other hand, although South Korea's corporate governance reform is still in its early stages, these measures may become a long-term catalyst for valuation expansion, enhancing market performance and foreign investor confidence.

We expect the KOSPI Index to reach KWR 6,000 by the end of FY2027, with a potential upside of 27% (as of January 14, 2026), and maintain a 3.5-star "Attractive" rating for the South Korea stock market.

Table 1: The KOSPI Index

KOSPI Index	2024A	2025E	2026E	2027E
EPS	208.5	246.3	440.5	501.7
Earnings Growth	44.3%	18.2%	78.8%	13.9%
PE Ratio	22.7	19.2	10.7	9.4
Projected Fair Price (based on fair PE ratio of 12x)				6,000
Potential Upside				27%

Table 2: Investment Products

Product type	Recommended products
Unit Trust	·         JPMorgan Funds – Korea Equity A (acc) USD ·         LionGlobal Korea Fund SGD
ETF	Franklin FTSE South Korea ETF (NYSE: FLKR)

Figure 6: KOSPI Forward P/E

Figure 7: KOSPI Earnings

Declaration:

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