In previous decades, South Korea has always been a cultural and financial afterthought after Japan, with its dominance in electronics and engineering through companies like Sony, Toyota, JVC, Honda, and Mitsubishi; and China, with its enormous low cost manufacturing, geopolitical and military clout, and expanding middle class prosperity. Apart from the Korean War and the TV series about it, M*A*S*H*, many in the west were only vaguely aware of Korea.
JHowever, since the start of the 21st century, Korean cultural and technological influence has exploded around the world. Among its landmark achievements:
- K-Pop became a huge, Grammy Award winning presence in the music industry, with BTS, Blackpink, and others becoming worldwide superstars.
- The class conflict drama Parasite (2019) unprecedentedly won the Oscar for Best Picture.
- The Netflix hit series Squid Game spawned an instantly recognized brand across the globe that has inspired spinoffs in the US, Europe, and elsewhere.
Less heralded but equally impressive has been Korea’s industrial and financial prowess, especially its ability to dominate certain key market niches, like memory chips, and offer a quality/price ratio in competing markets that falls between Japan and China to often overtake both. Additional R&D investments in computer numerical controlled (CNC) manufacturing robotics have helped Korean companies expand factories successfully in Indonesia, ahead of Chinese rivals, where Sino/Indonesian ethnic conflicts are still ongoing. As a result, several Korean ETFs and CEFs have boomed over 100% YTD, with one leveraged Korean ETF up over 500%. Curious investors may wish to take a closer look at the following (quoted at time of this writing):
- iShares MSCI South Korea ETF (NYSE: EWY | EWY Price Prediction): +111.72% ytd
- The Korea Fund, Inc. (NYSE: KF): +115.79% ytd
- Direxion Daily South Korea Bull 3X Shares (NYSE: KORU): +500.39% ytd
Turning Memory, Currency and Reform Into Market Rocket Fuel
A weaker Korean won has made its exports cheaper, bolstering record sales of Korean HBM chips, Samsung smartphones, and a menu of other products.
Despite South Korea’s nearly complete dependence on imported oil, its markets have soared even higher since the start of the Iran War. There are three primary factors that analysts cite that are driving this growth activity, and, short of a natural disaster or an attack from Kim Jong Un in the north, should continue for the foreseeable future:
HBM Memory:
High Bandwidth Memory (HBM) is ultra-swift computer memory in chip form geared for A.I. hardware and data center processing units. Essentially, HBM microscopically stacks multiple DRAM memory chips to drastically increase data handling power without a significant power draw. South Korea’s Samsung and SK Hynix have a near monopoly between 80-90% of this market, which has an unslakable thirst for HBM chips as A.I. data centers proliferate at an increasing rate.
A Softer Won:
President Trump has touted a preference for a weaker US dollar in order to more easily facilitate exports. Given that South Korea’s won is also at its lowest valuation since the 2008-2009 subprime mortgage banking meltdown and the international demand for HBM memory is so overwhelming, the weaker won has removed the last of any objections to Korean exports, which also include Samsung Galaxy smartphones and flat-screen TVs, wireless technology, Hyundai vehicles, musical instruments, and a panoply of other products.
“Value Up” Reforms:
As mentioned above, Korean industries had lived in the shadow of Japanese and Chinese ones for nearly a half-century. This perception resulted in a discounted valuation that Korean regulators have assiduously fought to address and to dispel. Regulatory laws and policies requiring greater shareholder returns, increased share liquidity, and improvements in capital allocation have since caught the eye of both institutional and individual investors in the international financial community.
Investing in Korea Through Funds
Goldman Sachs predicts Korean KOSPI earnings to soar 300% in 2026.
The Korea Fund: KF is a closed-end fund that is a pure-play Korean growth approach. Actively managed, it has a 1.75% expense ratio, and its largest holdings, unsurprisingly, are in SK Hynix (18%) and Samsung Electronics (21%), along with Shinhan Financial Group, KB Financial Group, and Kia Corp.
iShares MSCI South Korea ETF: this ETF tracks the MSCI South Korea 25/50 Index. It’s designed to limit concentration overweighting from Samsung and SK Hynix, which dominate the KOSPI (Korean S&P 500 equivalent) akin to the way the Magnificent 7 stocks affect the S&P 500 and NASDAQ-100 indexes. Other huge Korean chaebols, which are family controlled conglomerates similar to Japanese keiretsu, are prominently listed in the KOSPI. Its 0.59% expense ratio is decidedly lower than that of KF.
Direxion Daily South Korea Bull 3X Shares: this ETF utilizes swap agreements, KOSPI stocks, EWY shares, in a combined 3X leverage strategy. This is how it has been able to gain +500% ytd. However, KORU resets daily, so there are no longer term compounding bull runs. Additionally, the +300% leverage means that daily losses can erode gains just as quickly as accumulating them.
KF, KORU and EWY all hold their stocks in won, so there are potential currency fluctuation risks during forex conversion to US dollars. In general, EWY and KF are better suited for investors, while KORU is going to appeal more to short-term traders.
Goldman Sachs recently published an analysis of the South Korean economy and predicts +300% earnings growth and a KOSPI Index rise from the 8,5000 region to 9.000 by year’s end. If Goldman Sachs is bullish on Korea, it looks like this is a high-speed train with a lot of distance still ahead of it for a ride.
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