SEOUL, May 06 (AJP) - South Korea’s benchmark KOSPI surged past the 7,000-point threshold for the first time Wednesday, hitting a historic milestone as a record-breaking rally in semiconductor and artificial intelligence stocks redefined the nation’s capital market. While the move marks a structural shift for Asia’s fourth-largest economy, intensifying warnings of an asset bubble are beginning to temper the celebratory mood among institutional investors.
While the benchmark index was driven by chip and AI infrastructure stocks, declining shares continued to outnumber gainers, raising concerns that the rally is becoming increasingly narrow and overheated. Experts warned that South Korea’s AI-driven market boom remains overly concentrated in semiconductors, exposing broader structural imbalances within the economy.
AI ecosystems need to develop in a balanced way across infrastructure, models and services, but South Korea is still heavily concentrated on the hardware side, such as semiconductors and data centers, Lee Seong-yeob, a professor at Korea University’s Graduate School of Technology Management, told AJP. That imbalance could make it difficult for the country to build a fully sustainable AI ecosystem over the long term, he added.
Earlier this year, the KOSPI plunged as much as 19.2 percent during a sharp selloff triggered by escalating conflict involving Iran, highlighting the market’s sensitivity to geopolitical shocks.
Much of the recent rally has been concentrated in a small number of technology giants, particularly chipmakers Samsung Electronics and SK hynix. The two companies now account for more than 43 percent of the KOSPI, underscoring the widening gap between the benchmark index and the broader market.
Foreign investors alone bought nearly 2.9 trillion won worth of KOSPI shares on Monday, marking the third-largest daily foreign net purchase on record. The index climbed through multiple key thresholds in less than a year, having first crossed the 4,000 threshold in October last year and breaking above 6,000 on Feb. 25.
The rally has pushed the total market capitalization of South Korean equities beyond 6,600 trillion won, cementing the country’s status as one of the top-performing equity markets globally. As of 2:36 p.m. (0536 GMT) Wednesday, the KOSPI stood at 7,408.69, up 6.78 percent from the previous session.
In early 2025, the KOSPI briefly approached the 2,300 level as political turmoil following the declaration of emergency rule and concerns over U.S. President Donald Trump’s trade policies rattled investor sentiment. Foreign investors sold South Korean equities for nine consecutive months through April 2025.
The "Liberation Day" shock on April 2, 2025, when the U.S. imposed sweeping reciprocal tariffs on major trading partners, also weighed heavily on the index. However, that downturn ultimately marked a turning point as foreign buying resumed from May through October last year.
Government measures to address the long-standing "Korea discount" also played a significant role in the rally. These included revisions to the Commercial Act, plans to require companies to cancel treasury shares, and efforts to introduce separate taxation on dividend income to improve shareholder returns.
Shares of Samsung Electronics and SK hynix have surged on expectations of a prolonged semiconductor supercycle. SK hynix reported a 405.5 percent jump in first-quarter operating profit from a year earlier, while Samsung Electronics posted a 755 percent increase in semiconductor earnings.
Samsung Electronics crossed the 1 trillion dollar market capitalization threshold for the first time, becoming the second Asian company to reach the milestone after Taiwan Semiconductor Manufacturing Co. The company climbed to 11th place in global market capitalization rankings.
Samsung shares surged 15.05 percent intraday and have risen more than fourfold over the past year. The company’s semiconductor division posted an operating profit that surged nearly 48-fold from a year earlier to 53.7 trillion won.
Lee noted the current rally reflects both the success and the structural risks of the South Korean semiconductor-centered growth model. The current rally is heavily concentrated in semiconductors, meaning other sectors are struggling to keep pace, he said.
He described South Korea’s semiconductor dominance as the result of decades of long-term industrial policy. He noted the national strategy, which accelerated during the Park Chung-hee administration through a focus on strategic industries, has ultimately translated into global competitiveness.
The sharp market rally has also drawn more individual investors, with active trading accounts topping 105 million as of late April. Brokerage firms also reported a surge in stock accounts opened for minors.
While the KOSPI’s price-to-book ratio has risen to 2.12 from 0.80, it remains well below the S&P 500’s 5.44 at the end of last year. Analysts argue that valuations are not yet excessively stretched because corporate earnings have surged alongside share prices.
Still, Samsung Electronics’ mobile and display businesses face pressure from rising material costs, while labor unions have threatened a strike later this month over profit-sharing issues.
Lee warned that external risks, such as oil prices and geopolitical instability, could eventually slow the rally. As long as there is strong demand from U.S. Big Tech companies in AI, the sector is likely to keep rising for the time being, but surging energy prices could still become a major drag, he said.
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