UK Media: Can South Korea's Epic Bull Market Withstand Energy Shock?

How AI · Energy Shocks Reveal the Vulnerability of the Korean Stock Market

Perhaps, but investors should be prepared for greater volatility.

March 17, 2026

Last spring, Lee Jae-myung campaigned for president of South Korea with the promise that the KOSPI index would reach 5,000 points, and he ultimately won. As a campaign pledge, this was undoubtedly an impressive concrete goal. But at the same time, it seemed like an unreachable dream. Back then, Korea’s benchmark stock index was only half that target, well below the peak of around 3,300 points in 2021. However, by the end of January, less than eight months into his term, Lee Jae-myung had fulfilled his promise. Just a month later, the KOSPI broke through 6,000 points, making the previous slogan seem overly conservative. Over the 12 months ending in February, the index surged 138%, far outpacing all major global stock markets. Nothing could stop its advance.

However, energy shocks changed everything. In the two trading days following the US and Israel attacks on Iran, the Korea Composite Stock Price Index (KOSPI) plummeted nearly 20%, falling more than other major indices. As a major energy importer, Korea suffers heavily when oil and natural gas prices rise. With key Gulf region energy suppliers incapacitated by war, the Korean government pledged to increase coal-fired power plant output and limit consumer prices. Foreign investors had already begun selling off before the conflict; now, large domestic investors joined the sell-off. So, has the KOSPI bull run come to an end?

The sustained rally over the past 12 months is rare by Korean stock market standards. For most of the past decade, the index was mostly range-bound (except during the post-pandemic economic boom of 2021). Its constituent stocks are mainly in traditional export sectors like automotive manufacturing, shipbuilding, defense, and consumer electronics. Many of these industries have been hit by low-cost Chinese imports. They are also often controlled by large, opaque family conglomerates (chaebols).

As a result, stock returns have been sluggish, and the Korea Composite Stock Price Index (KOSPI) has long traded at a “Korean discount.” In early 2025, the index’s price-to-earnings ratio was only 10, compared to 15 for Japan’s TOPIX (which shares some similarities with KOSPI), and 25 for the US benchmark S&P 500 (which bears little resemblance to KOSPI).

The past year’s investor enthusiasm for Korean stocks (K-shares) can be seen as a case where flaws suddenly became advantages. Korea’s asset-heavy balance sheets and low obsolescence rates are typical features of “halo stocks” that have become popular. In the software-dominated era, the capital intensity of KOSPI components was seen as inefficient. But as companies race to build AI infrastructure, defense budgets swell, and Western countries decouple from China in key sectors—from electric vehicle batteries to LNG carriers—this capital-intensive strategy has gained favor.

These trends continue. This explains why, despite tensions over Iran, the KOSPI has not betrayed Prime Minister Lee Hsien Loong’s campaign promise. It also suggests there is still room for the Korean stock market to rise. However, these gains may become more volatile.

One reason is the increasing concentration within the KOSPI. Just two companies—Samsung Electronics and SK Hynix—account for 40% of the index’s market value, up from about 16% in early 2025; these two contributed over two-thirds of the index’s annual returns. Fueled by the booming AI sector, profits from memory chips soared, pushing the KOSPI to impressive heights. Today, thanks to AI growth, memory chip sales are booming like Seoul’s sugar cakes. But, like other parts of the semiconductor industry, these profits are prone to cyclical booms and busts.

Second, the Korean stock market is increasingly favored by domestic retail investors. The number of active trading accounts and their deposits at brokerages have exploded. Many investors are trading on margin. Margin trading (borrowing from brokers) hit a record 34 trillion won (about $230 billion) in early March, up from 18 trillion won a year earlier. Offshore leveraged ETFs that give Korean investors opportunities to buy shares of companies like Samsung or SK Hynix have attracted billions of dollars in inflows this year. All these factors amplify gains but also increase risks.

Given the bright prospects for companies in the KOSPI, savvy investors both domestically and abroad may return to the market. Wall Street strategists note that the market’s crowdedness is much lower than a month ago, and valuations remain quite low. Similar to reforms that boosted Japanese corporate valuations in recent years, Korea’s corporate governance reforms have bipartisan support. Once energy shocks subside, the volatility of the KOSPI could reemerge. But investors should be prepared for more intense swings than ever before.