AI demand boosts South Korea's composite index to break through the new high of 5000 points. Analysts: "This is just the beginning."

Driven by demand for artificial intelligence and benefiting from the volatility caused by tensions between the US and Europe, the benchmark index of the South Korean stock market has surpassed the 5000-point target set by President Lee Jae-myung. The Korea Composite Stock Price Index (Kospi) rose by 2.2% to 5019.54 points, with leading stocks including Samsung Electronics, SK Hynix, and Hyundai Motor. The index has increased by over 95% in the past 12 months, making it the best-performing benchmark index globally. On Thursday, the South Korean won rose by 0.1% against the US dollar. This surge highlights South Korea's transition from a cyclical export market to a key beneficiary of global AI prosperity, thanks to its dominant position in the critical storage chip sector. For Samsung Electronics and SK Hynix, the increase in memory prices has turned into profit growth and stock price appreciation. Breaking the 5000-point mark also signifies a political milestone, strengthening Lee's commitment to addressing long-standing governance flaws that have weighed on valuations. "This is just the beginning," said Kang Dae-kwun, Chief Investment Officer at Seoul Life Asset Management, predicting that the Kospi could reach 6000 points in two months. "Kospi has yet to undergo a valuation reassessment, this is just normalization. I don't think 5000 points is too high a level." The Kospi index has risen on all trading days in January except one, despite US President Trump's escalating comments about Greenland and threats to impose tariffs. The index barely recorded gains earlier in the week. Thursday's increase was part of a regional rise in relief, after Trump announced a "framework" agreement with NATO on the Greenland issue. The MSCI Asia Index rose by 0.7%. Lee Jae-myung emphasized this week that he is not trying to artificially boost stock prices, but rather to allow the market to normalize. He added that investment should be responsible. Local media reported that he planned to hold a lunch meeting with members of the National Assembly's "Kospi 5000-point Special Committee" later on Thursday. Bulls believe that the Kospi still has room to run before the so-called "Korean discount" disappears. The "Korean discount" refers to a long-standing valuation discount due to weak corporate governance. Despite reaching record highs, the Kospi still lags behind regional peers on key valuation metrics. The index's price-to-book ratio is around 1.6 times, lower than the MSCI Emerging Markets benchmark index and the Taiwan Weighted Index. Jeong Eun-bo, CEO of the Korea Exchange, stated that with the competitive advantages of local industries and efforts to increase shareholder returns, the Kospi could reach 6000 points. Market observers remain optimistic. Goldman Sachs expects Korean stocks to deliver a 23% return in US dollars this year, supported by favorable macro conditions. A major tailwind is the global shortage of memory chips. As demand for AI servers surged, raising memory prices, Samsung Electronics reported a more than doubled profit for the quarter, setting a new record. Mixo Das, head of Korea stock strategy at JPMorgan, stated that the supply-demand dynamics of memory chips could remain "unbalanced" until 2027 as manufacturers remain cautious about capital expenditures and new capacity. With tight supply, "there is still more upside," he said. However, rapid gains could be vulnerable to sudden sell-offs as profit-taking pressure increases. This surge has been driven by a few buyers, with net buying limited to local institutional investors. Retail investors are more restrained than during the market peak after the 2021 pandemic, when they drove the market higher. This time, they are putting their funds into US stocks, exacerbating the weakness of the Korean won and causing a decoupling from the domestic stock market, which is concerning policy makers. As signs of limited spillover effects to the real economy, South Korea's GDP shrank in the fourth quarter of 2025. The country's delicate balance between the US and China also places it at the center of global tariff tensions. Nevertheless, the optimism about structural improvements in the stock market is hard to ignore. The government-led "value enhancement" plan aimed at increasing shareholder returns is underway, and plans to extend trading hours in the stock and currency markets are raising expectations of increased liquidity. These efforts could bring the country closer to an upgrade to developed market status by MSCI. Legislation is also gaining momentum. Recent revisions to the Commercial Act have strengthened board accountability and enhanced shareholder oversight of directors. The next item on the parliament's agenda is a bill to mandate the cancellation of treasury stocks, which should reduce oversupply and improve capital efficiency. "The Korean market has long been an overlooked market, trading at a significant discount, continued progress in reforms, along with effective implementation, could support further valuation reassessment in the market," said Sojung Park, portfolio manager at Matthews International Capital Management.