The South Korean stock market is emerging as a new investment destination for Wall Street, fueled by the surge in artificial intelligence (AI) and semiconductors. Beyond the soaring stock prices of SK Hynix and Samsung Electronics, companies like SK Square and Samsung Life, which hold stakes in these firms, are also attracting global investors' attention. Two years ago, foreign capital was primarily focused on reevaluating the Japanese stock market, but that gaze is now shifting toward Korea.
The Nihon Keizai Shimbun reported on May 14 that "walking the streets of New York, one can feel the popularity of Korean culture, from music to food and cosmetics. Wall Street is no different," noting that both institutional and individual investors are increasingly drawn to South Korean stocks.
This trend was evident at the "Sorn Investment Conference" held in New York on May 12. Known as a "hedge fund festival," the event showcased investment ideas from both emerging and veteran fund managers. Eduardo Marques of hedge fund Pertento Partners took the stage, stating, "Lately, I have been focused on uncovering complex value investment opportunities hidden within Korean stocks."
The driving force behind the rise of the South Korean stock market is the demand for high-performance memory for AI data centers. The Nihon Keizai Shimbun highlighted that the KOSPI index has tripled in the past year, marking the steepest rise among major global indices. The tight supply of high-performance memory for data centers has led to soaring stock prices for SK Hynix and Samsung Electronics, lifting the entire market.
On the surface, South Korean semiconductor stocks still appear undervalued. According to the Nihon Keizai Shimbun, the projected price-to-earnings ratios (PER) for SK Hynix and Samsung Electronics are both around six, still below their American competitor Micron Technology, which stands at nine. However, Marques emphasizes that he is not focused on this PER gap. He remarked, "PER comparisons are already well-known in the West," suggesting that there are much more deeply discounted stocks available for purchase.
He pointed to SK Square and Samsung Life as notable examples. SK Square is a major shareholder in SK Hynix, while Samsung Life holds significant shares in Samsung Electronics. The Nihon Keizai Shimbun noted that the market capitalizations of these two companies are only about half the value of their stakes in memory firms. Due to the unique cross-shareholding structure of South Korean conglomerates, these long-ignored discount factors are now seen as attractive value investment opportunities by Wall Street investors.
Investor expectations are also being fueled by the South Korean government's push for improved corporate capital efficiency. There is growing anticipation among foreign investors that the undervaluation of holding companies and insurance firms, long viewed as a symbol of the Korea Discount, may be resolved in conjunction with the government's corporate value-up program. Similar to the recent reevaluation of the Japanese stock market amid pressures for improved capital efficiency and activism from investors, a similar transformation may be on the horizon for the South Korean market.
There are also projections that the AI memory boom could translate into domestic consumption in South Korea. Jonathan Lennon of Present Lake Partners recently analyzed that Samsung Electronics is considering a plan to pay bonuses equivalent to 10% of operating profits, similar to its competitors, after interviewing several former employees. He stated, "Our calculations suggest that the total bonuses for both companies could reach $40 billion, which corresponds to several percent of South Korea's GDP," indicating that this could have unprecedented ripple effects.
Individual investors are also rapidly pouring funds into the market. A memory stock exchange-traded fund (ETF) launched by U.S. firm Roundhill attracted over $6 billion within a month of its debut in early April. The Nihon Keizai Shimbun reported that this marks the fastest inflow rate ever, surpassing that of Bitcoin ETFs in 2024. Nearly half of the ETF's assets are in SK Hynix and Samsung Electronics.
Access for U.S. investors to South Korean stocks is also expanding. Interactive Brokers, a U.S. online brokerage, began offering trading services for stocks listed on the Korea Exchange on May 7. Previously, U.S. investors could only access South Korean stocks through ETFs or American Depositary Receipts (ADRs), but now they have broader options for investing in individual South Korean stocks.
This trend is also linked to the high valuation pressures in the U.S. stock market. Marques noted, "No matter how much one believes in artificial intelligence, the valuations of U.S. stocks appear very high." The Nihon Keizai Shimbun reported that the S&P 500 index reached an all-time high on May 13, with projected PERs in the 21 range, significantly exceeding the 15-year average of 17. While the AI growth story remains valid, there is a growing perception that it has become difficult to generate additional returns solely from U.S. stocks, increasing interest in alternative investment destinations like South Korea.
A notable point is the contrast with the Japanese market. The Nihon Keizai Shimbun reported that Japanese stocks were hardly mentioned at the Sorn Conference. Just two years ago, activist investors were prominent speakers, drawing attention to the Japanese market, but now it has been noted that "the narrative has run dry" for Japanese stocks.
The strategies of investment banks and brokerages are also changing. Hong Kong-based CLSA is set to hold a new investor event called the "Northeast Asia Forum" in Seoul in June. In contrast, the existing "Japan Forum," which has been held for over 20 years, is expected to be renamed and scaled down, according to the Nihon Keizai Shimbun. This shift of a marquee Asian stock event from Tokyo to Seoul symbolically reflects where global investment banks see the flow of capital in Northeast Asia heading. The competition among Northeast Asian stock markets to attract global money is intensifying.
It is noteworthy that a leading Japanese economic newspaper framed the situation as "Japanese stocks are running out of steam, while South Korean stocks present new investment ideas." This signals that the recent rally in the South Korean stock market is being interpreted as a shift in the allocation of global capital in Northeast Asia, extending beyond just a semiconductor boom.
* This article has been translated by AI.
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