Latest / International Business with Fexingo: Global Trade, Cross-Border Deals, and Multinational Operations / How South Korea's Stock Market Is Surging in 2026
Transcript
- Lucas: South Korea's stock market has been on an absolute tear this week. The KOSPI is up more than 11 percent in the last five days alone, and the iShares MSCI South Korea ETF, ticker symbol e w y, returned over 11 percent as of this morning. Luna: That's double the S&P 500's gain over the same period. What's driving this? Lucas: A few things, but let's start with the won. The Korean won has weakened about 5 percent against the dollar this year, trading around 1,600 won per dollar. That's a huge tailwind for exporters like Samsung and SK Hynix, which generate a lot of revenue overseas. Luna: Right, a weaker won makes their products cheaper for foreign buyers, and when they convert profits back to won, they get a currency boost. Lucas: Exactly. But the bigger story is the government's 'Value Up' program. It's basically a push to force companies to improve shareholder returns and corporate governance, similar to what Japan did a few years ago with its own exchange reforms. Luna: And it's working? I remember when Japan's Nikkei hit record highs after years of stagnation. Lucas: It's early, but initial signs are promising. Companies like Samsung have announced share buybacks and higher dividends. The KOSPI is up over 20 percent year-to-date, and foreign investors are piling in. In May alone, net foreign buying of Korean stocks exceeded $3 billion. Luna: But there's a geopolitical angle too, right? I saw headlines about the U.S. and Iran agreeing on a roadmap for a deal. Lucas: That's the third piece. A potential Iran deal reduces oil price uncertainty. South Korea is a major oil importer, so lower oil prices would improve their trade balance and corporate margins. And geopolitically, it could ease tensions in the Middle East, which is good for global trade. Luna: So the rally is a perfect storm of currency, policy, and geopolitics. But there must be some risks. Lucas: There are. One big one is household debt. South Korea has one of the highest household debt to gdp ratios in the world, over 100 percent. If interest rates stay high or the economy slows, that could become a serious drag. Luna: And export dependence. China is still South Korea's largest trading partner, and we saw this week that China imposed trade curbs on dozens of U.S. firms. That could escalate and hurt Korean companies caught in the crossfire. Lucas: Plus, the semiconductor cycle is still cyclical. Samsung and SK Hynix dominate memory chips, but demand for memory can swing wildly. If we see a glut later this year, earnings could drop sharply. Luna: Let's zoom out. How does South Korea's performance compare to other emerging markets right now? Lucas: It's the standout. The broader emerging market ETF, VWO, is up only 2.2 percent in the last five days. India's ETF, INDA, is up 2.6 percent. Taiwan's ETF, EWT, is up 7.2 percent, which is solid, but South Korea is in a league of its own this week. Luna: And yet some countries are lagging. China's FXI is down almost 5 percent, and Brazil's EWZ is down 3 percent. Lucas: Exactly. So the rally is very concentrated. It's not a broad EM rally; it's a Korea-specific story, maybe with a bit of a Taiwan spillover. But Korea's gains are more than double Taiwan's. Luna: What about valuations? Is it getting expensive? Lucas: The KOSPI's price to earnings ratio is around 12 times forward earnings, which is actually below its five-year average of 13.5. So it's not bubble territory yet. But if earnings don't catch up, the rally could stall. Luna: So you're cautiously optimistic? Lucas: I'd say cautiously bullish. The Value Up program is a genuine structural reform, and currency tailwinds are real. But household debt and China exposure are risks you can't ignore. I'd want to see more earnings momentum before getting fully excited. Luna: If these conversations have helped you think about markets in a new way, or given you an edge in your work, there's a simple way to support the show and keep it ad-free. You can visit buy me a coffee dot com slash fexingo. No pressure, just a way to say thanks. Lucas: And it genuinely helps. Listener support is what keeps this independent. So if you've found value in our deep dives, consider a small contribution. Okay, back to the numbers. Luna: So Lucas, what should listeners watch for in the coming weeks to gauge if this rally has legs? Lucas: Two things. First, watch the won. If it strengthens too much, that tailwind turns into a headwind. Second, watch the export data. July exports from Korea will be a big clue. If they continue to grow year-over-year, that supports the rally. If they slow, it could be a sell signal. Luna: And what about the Iran deal? Could that be a catalyst for a broader EM rally? Lucas: It could, especially if oil prices drop further. Lower oil helps oil-importing EMs like Korea, India, and Turkey. But it hurts oil exporters like Brazil and Russia. So the effect would be uneven. For Korea specifically, it's net positive. Luna: Let's talk about the domestic political angle. President Yoon's government has been pushing these reforms, but there's an election coming next year. Could a change in government derail the Value Up program? Lucas: That's a real risk. The opposition has been critical of the program, saying it's too friendly to big business. If they win, they might reverse or water down the reforms. But for now, the market is giving the government the benefit of the doubt. Luna: What about the Bank of Korea? They've been hiking rates to fight inflation. How does that factor in? Lucas: The Bank of Korea has kept the base rate at 3.5 percent for several months now. Inflation is moderating, so they might cut rates later this year, which would be another boost for stocks. But if they cut too soon, it could weaken the won further and reignite inflation. Luna: It's a delicate balance. So the narrative is: Korea is doing a lot of things right, but the global environment and domestic vulnerabilities are still big unknowns. Lucas: Exactly. And that's why I think this rally still has room to run, but it's not a sure thing. Investors need to stay nimble and keep an eye on those key data points. Luna: Well, we'll be watching. Thanks Lucas. Lucas: Great conversation, Luna. Onwards.