[Journalism Internship] Kospi on trajectory for long-term growth, but monetary policy remains key
Published: 31 Dec. 2025, 16:34
![Electronic displays show market at Hana Bank in central Seoul on Oct. 30. [YONHAP]](https://koreajoongangdaily.joins.com/data/photo/2025/12/31/c115c67d-4ae1-4f2c-a922-db4969c428d3.jpg)
Electronic displays show market at Hana Bank in central Seoul on Oct. 30. [YONHAP]
Lee Min-jun, Choi Min-jo, Eum Yun-woo
The Kospi's rise above 4,000 is being driven by long-term factors rather than short-term market excitement.
A global rebound in semiconductors, the steady return of foreign investors and growing expectations for corporate governance and policy reform are changing how investors value Korean stocks, suggesting the rally reflects a broader and more lasting market shift.
Korea’s semiconductor industry has been a key force behind the Kospi's rise, as global demand for advanced memory chips rebounds strongly across major technology markets.
Korean chip giants Samsung Electronics and SK hynix are expanding their memory production, particularly with high bandwidth memory used in AI servers, to meet the growing demand from the artificial intelligence and data center markets. This move, analysts say, is steadily improving industry outlooks and earnings expectations.
Data from the Bank of Korea (BOK) shows that semiconductor exports have reached record levels this year, with monthly export figures repeatedly breaking historical highs, a trend that has strengthened expectations for broader national economic growth. In the third quarter of 2025, semiconductors helped drive Korea’s overall export value to its highest level on record, as memory chip shipments surged and pushed the share of Korea’s top exporters to about 40 percent of total exports.
Because Samsung and SK hynix are among the largest listings by market capitalization on the Kospi, their strong performance has had a disproportionate impact on the index, drawing more investment and sustained inflows into Korean equities.
This rebound in semiconductors is closely tied to structural shifts in global technology demand, suggesting that the industry’s recovery reflects a more lasting trend with meaningful implications for Korea’s market performance, rather than a short-lived surge driven by temporary sentiment.
Interest rates play a central role in equity valuation because stock prices represent the present value of future corporate earnings, discounted by prevailing interest rates.
When interest rates decline, the discount rate applied to future cash flows decreases, thereby increasing their present value and exerting upward pressure on stock prices.
This valuation mechanism became a key factor behind the Kospi's advance in 2025, as expectations for monetary easing gained traction.
In response to slowing domestic growth, the BOK cut its policy rate and signaled a shift away from prolonged monetary tightening toward a more accommodative stance.
Financial markets interpreted this move as the effective end of the tightening cycle and began pricing in the possibility of additional rate cuts, allowing equity valuations to expand and the Kospi's price-to-earnings ratio to rise above historical averages.
However, Korea’s room for further easing has been constrained by external considerations, particularly the key interest rate difference with the United States.
Cutting rates too aggressively could widen the gap with U.S. yields, increasing the risk of capital outflows and further depreciation of the Korean won.
As a result, the Kospi's rally has reflected not expectations of unlimited rate cuts, but confidence in a broadly supportive and predictable monetary policy path. The market’s advance has therefore been driven by anticipated easing conditions rather than certainty over continued reductions in interest rates.
One notable change supporting Korea’s stock market is the gradual improvement in external trade conditions.
As concerns over a global economic slowdown ease, signs of recovery in global trade volumes are emerging, creating a favorable environment for the export-driven Korean economy. In particular, the recovery of IT exports — led by semiconductors — has become a key factor in improving trade conditions. As the global semiconductor cycle is increasingly seen as having passed its bottom, demand for Korea’s major export products is beginning to rebound.
This has strengthened expectations for corporate earnings growth and provided positive momentum across the broader stock market. In addition, easing uncertainties in global supply chains are further supporting the trade outlook. Logistics and production networks that were disrupted by the pandemic and geopolitical tensions are gradually stabilizing, allowing Korean companies to operate in a more predictable environment.
This stability has helped foreign investors view the Korean market as a more reliable investment destination.
Ultimately, improving trade conditions does more than boost short-term exports. They are enhancing the overall outlook for Korea’s economy and reinforcing the structural foundation of the stock market’s upward momentum. This supports the view that Kospi’s move above 4,000 reflects a broader macroeconomic shift rather than a temporary surge driven by market enthusiasm.
BY LEE MIN-JUN, CHOI MIN-JO, EUM YUN-WOO [[email protected], [email protected], [email protected]]
with the Korea JoongAng Daily
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