South Korean stocks hit a record high on AI, market reform optimism
South Korean equities surged to new record highs this week, driven by upbeat investor sentiment about artificial intelligence (AI) prospects and fresh moves by President Lee Jae Myung to advance market reforms. The Kospi index notched its highest closing ever, surging around 1.5% on Friday to about 3,395.54, marking its strongest weekly gain in 4½ years at nearly 5.94%.
What’s fueling the rally
Several key catalysts have combined to push South Korean markets upward:
* AI-Driven optimism: Heavyweights in the semiconductor sector, such as SK Hynix and Samsung Electronics, jumped sharply. SK Hynix gained about 7% after announcing internal certification for next-generation High-Bandwidth Memory 4 (HBM4), bolstering hopes that it can meet growing global AI demand.
* Market reform moves: President Lee delayed or backed off proposed changes to capital gains tax that had unsettled investors. Particularly, the plan to lower the threshold for defining “large shareholders” subject to higher tax from five billion won to one billion was pushed back, defusing some political and regulatory risk.
* Foreign investor inflows & currency strength: Foreigners were net buyers of Korean shares, encouraged in part by the won strengthening against the U.S. dollar. Lower bond yields domestically also made equities more attractive.
* Broader global backdrop helps: Expectations for U.S. Federal Reserve rate cuts, along with strong gains elsewhere in Asia and growing interest in tech/A.I. stocks globally, added tailwinds. Koreans benefit from being a major exporter of semiconductors which are critical inputs for AI infrastructure.
What reforms are winning investor confidence
President Lee’s government is pushing a number of reforms aimed at narrowing Korea’s valuation gap relative to other markets (“Korea discount”). Investors are especially encouraged by:
* Corporate governance changes: Revisions to the Commercial Act aim to strengthen duties of board members and improve protections for minority shareholders. These reforms respond to concerns over dominant family ownership in chaebols and opacity in related-party transactions.
* Tax policy adjustments: The administration has walked back proposals that threatened to burden investors, especially those related to capital gains tax thresholds and transaction taxes. Delays or reversals are helping soothe market fears.
* Shareholder returns and valuation enhancements: Lee’s “Kospi 5,000” campaign underscores the goal of boosting market value of publicly traded firms. There is also talk of encouraging dividends, better disclosure, and more favourable treatment to draw in foreign capital.
Sector movers & broader stats
* Semiconductors led the way. SK Hynix rose around 7%, Samsung Electronics also posted a strong gain. Other tech and battery companies saw meaningful gains.
* Financials and securities surged on expectations that governance reforms will improve transparency and shareholder interest, boosting institutional investor confidence.
* The KOSPI’s advance is remarkable: up over 40% year-to-date, making it among Asia’s top-performing indexes in 2025.
Risks and Key Watchpoints
Despite the strong momentum, several risks could test the sustainability of this rally:
* If tax reforms or regulatory changes get delayed again, investor confidence might waver. Even promises made so far might be scrutinised if implementation is slow.
* Valuations in tech and chip stocks are already rich in many cases; rising input costs or supply chain constraints could erode margins.
* External risks like global interest rates, U.S. dollar strength, geopolitical tensions, or weaker demand for exports could hurt, especially since Korea is export-dependent.
* Currency moves are a double-edged sword: while a strong won helps import costs, it may weaken export competitiveness.
Future Outlook
Looking ahead, if Korea continues to push reforms—balancing tax policy with investor-friendly rules, enforcing governance, and maintaining political stability—foreign inflows might persist. AI and tech sectors are expected to remain central drivers, particularly if semiconductor demand surges further with adoption of HBM4 and other advanced chip technologies. Moreover, the government’s willingness to respond to market feedback (e.g. delaying unpopular tax changes) suggests that policy risk might be receding, which is comforting for both domestic and foreign investors. If rate cuts from major central banks materialise, Korea may benefit as investors look for growth-oriented, reasonably valued equity markets.
Conclusion
South Korean stocks have hit a record high, powered by AI optimism and pro-reform policy signals from the Lee administration. The successful mix of advancing corporate governance, adjusting tax proposals, and strengthening external demand has rekindled investor confidence. While risks remain, the current rally reflects a belief that Korea may be entering a new phase of equitable, resilient market growth.
The image added is for representation purposes only
