Why is KOSPI continuing to strengthen? The triple driving forces of AI chips, export recovery, and capital inflows.

July 7, 2026 (Beijing time), the Korea Composite Stock Price Index (KOSPI) closed at 7,656.31 points, plummeting 4.91% in a single day, and once plunged 8.22% intraday, triggering a circuit breaker. Short-term volatility is sharp, but over a longer horizon, KOSPI is the best-performing major index in Asia in the first half of 2026—nearly doubling. In a report on July 5, Goldman Sachs maintained its 12-month target for KOSPI at 12,000 points, implying more than 20% upside from then-current levels.

The coexistence of sharp gains and violent fluctuations is the core theme for understanding the current KOSPI market. From the three dimensions of macroeconomics, industrial structure, and market capital, systematically sort out the three major forces driving KOSPI's rise.

Driving Force One: Record Exports, Semiconductors as the Absolute Engine

In June 2026, South Korea's monthly exports surpassed $100 billion for the first time, reaching $102.25 billion, a year-on-year increase of 70.9%, making it the fourth country after Germany, China, and the US to achieve monthly exports of $100 billion. During the same period, the trade surplus reached $36.15 billion, also a record high.

Semiconductors are the absolute core of this export surge. In June, semiconductor exports reached $44.82 billion, soaring 199.5% year-on-year, breaking through the $40 billion mark for the first time in a single month. The explosive growth of memory chips is particularly prominent—in June, South Korea's memory exports increased by 280% year-on-year, the fifth consecutive month of growth exceeding 200%; among them, DRAM exports surged 385% year-on-year, the strongest level since 2008; NAND chip exports grew 301% year-on-year, and SSD exports increased 355% year-on-year.

The cumulative data for the first half year is equally astonishing. From January to June 2026, South Korea's total exports reached $496.7 billion, a year-on-year increase of 48.4%. Among them, semiconductor exports reached $192.4 billion, already exceeding the total semiconductor exports for the full year 2025 ($173.4 billion). Semiconductors accounted for 38.7% of South Korea's total exports in the first half.

Huatai Securities analysis pointed out that South Korea's high export growth indicates that the global AI industry chain trade is still in a strong upward channel. The Philadelphia Semiconductor Index, which leads South Korea's semiconductor exports by about four months, remains at a high level year-on-year, suggesting that the boom in South Korea's semiconductor exports is likely to continue; meanwhile, against the backdrop of strong AI demand, memory prices are still rising, and prices will continue to support nominal exports.

Export data explains the macro fundamentals behind KOSPI's rise. The South Korean economy is highly dependent on external demand, and as the largest export category, the prosperity of semiconductors directly maps onto corporate profits and index trends. The explosive export growth in the first half of 2026 provided the most solid revenue support for KOSPI's valuation expansion.

Driving Force Two: AI Memory Super Cycle and Exponential Surge in Corporate Profits

Behind the export data lies the fundamental reshaping of memory chip demand by the wave of AI infrastructure investment. The continuous expansion of capital expenditures by global tech giants in large language models and data centers directly drives the simultaneous increase in volume and price of high-end memory products such as High Bandwidth Memory (HBM) and DDR5.

At the corporate profit level, the performance of Samsung Electronics and SK Hynix is the most convincing. In the second quarter of 2026, Samsung Electronics achieved an operating profit of 89.4 trillion won (approximately $58.44 billion), soaring about 18 times from 4.7 trillion won in the same period last year. Revenue increased by 129% year-on-year. This figure not only far exceeded market expectations of 87.3 trillion won but also pushed Samsung Electronics' quarterly profit to a new historical high. SK Hynix also benefited from the memory price increase cycle, with strong profit growth.

In a report on July 5, Goldman Sachs estimated that South Korea's overall stock market profit growth is expected to reach 320% in 2026, followed by another 35% growth in 2027. The report clearly stated that Samsung Electronics and SK Hynix contributed about 90% of KOSPI's gains in the first half.

Daishin Securities holds a more positive view. The brokerage believes that most recent market concerns about AI and the semiconductor industry lack basis, and strong second-quarter profits along with profit upgrades starting from the third quarter will push the KOSPI index towards the 10,000-point level.

Exponential profit growth is the core denominator-driven factor for KOSPI's valuation expansion. In a phase where profit growth far exceeds the rate of index increase, even with a significant index rise, valuation levels may tend to be reasonable or even low. As noted by a Mirae Asset Securities researcher, KOSPI's 12-month forward earnings per share (EPS) has exceeded 1,000 points, while the current index corresponds to a 12-month forward price-to-earnings ratio (PER) below 8 times, making valuation appeal still valid.

Driving Force Three: Dual Narrative of Capital Structure and Policy Expectations

Macro data and corporate profits explain "why it rose," while capital structure and policy expectations explain "why it can keep rising."

From a capital perspective, the capital structure of the South Korean stock market shows a distinct "internal-external divergence." In the first half of 2026, foreign investors net sold approximately 148 trillion to 150 trillion won (about $95 billion to $894k) of KOSPI stocks. On July 8, foreign investors continued to net sell about 330 billion won. However, sustained foreign outflows did not stop the index from rising—the absorbing force came from domestic investors, especially a massive influx of retail funds.

Since May, South Korean retail investors have cumulatively net bought 62 trillion won. The ratio of leveraged exposure to South Korea's free-float market capitalization reached 2.9%, a record high, more than doubling since the beginning of the year. The assets under management of 16 single-stock leveraged ETFs in South Korea have reached $9.1 billion.

Goldman Sachs' assessment is relatively optimistic on this. The report points out that while individual investor activity has increased, retail investors' exposure remains far below levels typically considered market overheating. The increase in leveraged ETF assets largely comes from valuation growth due to rising stock prices, rather than new borrowing. Additionally, South Korean household assets are still heavily allocated to real estate, cash, and mainly US-listed overseas stocks. If market conditions remain favorable, South Korean investors still have ample room to further increase their allocation to South Korean stocks.

Policy expectations are another important narrative line. On January 15, 2026, the South Korean National Assembly passed amendments to the "Electronic Registration of Stocks and Bonds Act" and the "Capital Markets Act," laying the legal foundation for the issuance and circulation of security tokens. Although the legislative process for the "Digital Asset Basic Act" has been delayed, the Korea Economic Research Institute proposed on July 6 to promote relevant legislation to facilitate the adoption of security token offerings (STOs). The Bank of Korea is advancing the second phase of the "Han River Project," aiming to establish the foundation for the formal adoption of a digital currency system and the commercialization of deposit tokens.

At the macro level, the South Korean Ministry of Economy and Finance issued a statement on July 8, saying it will step up efforts to stabilize the economy and financial markets in high-volatility environments, including the foreign exchange market, and plans to finalize and announce the "Won Internationalization Roadmap" in July. Deputy Prime Minister Koo Yun-cheol stated that the government will closely monitor risk factors that could trigger excessive stock market volatility and adjust the ratio of long-term government bond issuance to ensure market stability.

The tussle between institutional selling pressure and retail leveraged funds, the government's attention to financial market stability, and the advancement of institutional issues such as digital assets and won internationalization collectively form the complex capital and policy backdrop for KOSPI's trajectory. These factors themselves do not directly push up the index, but they shape market risk appetite and liquidity conditions, providing institutional and capital conditions for valuation expansion.

Risk Factors: Hidden Concerns Beneath the High-Growth Narrative

The logic for the rise is clear, but risks cannot be ignored.

First, industry concentration risk. Samsung Electronics and SK Hynix alone contributed about 90% of KOSPI's first-half gains. This extremely concentrated upward structure means that once the semiconductor industry cycle turns, the index faces systemic correction pressure. The Bank of Korea has issued a risk warning on single-stock leveraged ETFs linked to Samsung Electronics and SK Hynix, believing that related products may amplify market volatility and exacerbate excessive concentration in the stock market. Some lawmakers have even directly called for delisting individual stock leveraged ETFs.

Second, geopolitical and energy risks. The sharp opening decline in KOSPI on July 8 was directly triggered by heightened geopolitical tensions in the Middle East. Uncertainty between the US and Iran and shipping safety risks in the Strait of Hormuz pushed up international oil prices. WTI crude oil rose 2.80% to $72.41 that day, and Brent crude rose 2.78% to $76.22. As a major energy-importing country, rising oil prices will directly increase import costs, compress the trade surplus, and affect corporate profits.

Third, the possibility of profit growth peaking. Market consensus shows that Samsung Electronics' operating profit growth rate is expected to peak in the second quarter of 2026, while SK Hynix's will peak between the second and third quarters. Although the full-year growth rate remains high, the marginal slowdown in sequential growth may trigger a revaluation of valuations.

Conclusion

KOSPI's trajectory in the first half of 2026 resulted from the resonance of three forces: macroeconomy (record exports), industrial structure (AI memory super cycle), and capital structure (domestic funds absorbing institutional selling pressure). Export data provided fundamental backing, corporate profits provided valuation support, and capital and policy expectations provided marginal momentum for continued upside.

Goldman Sachs' 12,000-point target and Daishin Securities' 10,000-point expectation are both based on the assumption of sustained high profit growth. However, risk factors such as industry concentration, geopolitics, and the inflection point of the profit cycle determine that the path of this rally "will be bumpy, not smooth."

For market participants, understanding the drivers of KOSPI's rise also requires understanding the conditions under which these drivers could reverse. With the AI memory super cycle not yet peaking and South Korea's export boom still intact, KOSPI's medium-term direction remains clear; but the amplification of volatility and the accumulation of leveraged funds mean that the magnitude and speed of each correction could exceed linear expectations.

FAQ

Q: How much did KOSPI actually rise in the first half of 2026?

Goldman Sachs pointed out in a report on July 5 that KOSPI was the best-performing stock market in Asia in the first half of 2026, with the representative index nearly doubling. This gain was mainly driven by AI memory chip leaders such as Samsung Electronics and SK Hynix.

Q: What is Goldman Sachs' target price for KOSPI and on what basis?

Goldman Sachs set a 12-month target for KOSPI at 12,000 points, implying more than 20% upside from early July levels. The basis includes expectations of 320% profit growth in 2026, a forward P/E of 6.65 times, and the view that the rally will broaden from AI semiconductors to other sectors such as energy, raw materials, and industrials.

Q: Are foreign investors continuing to sell South Korean stocks?

Yes. In the first half of 2026, foreign investors net sold approximately 148 trillion to 150 trillion won of KOSPI stocks. On July 8, foreign investors continued to net sell about 330 billion won. Foreign investors have maintained a net selling trend for 13 consecutive trading days.

Q: How risky is South Korean retail investors' leveraged trading?

The ratio of leveraged exposure to South Korea's free-float market capitalization has reached 2.9%, a record high. The Bank of Korea has issued a risk warning on single-stock leveraged ETFs, believing they may amplify market volatility. However, Goldman Sachs believes retail exposure remains well below typical overheating levels.