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Korea rides one of the world’s hottest stock markets while the won sinks to the bottom

Published: 20 Jan. 2026, 18:58 Updated: 21 Jan. 2026, 23:33

JIN MIN-JI
[email protected]

Electronic display boards at a dealing room in Woori Bank in central Seoul show Korea's financial markets on Jan. 20. [YONHAP]

[NEWS ANALYSIS]

The Kospi is nearing 5,000 points, nearly doubling in a year and extending its streak as the top-performing index among major economies year-to-date. By contrast, the won ranks among the weakest currencies globally, with its nominal effective exchange rate recently bottoming out of 64 currencies tracked by the Bank for International Settlements.

The Kospi broke record highs for 12 consecutive days through Monday, driven largely by large-cap stocks centered on semiconductors, shipbuilding and defense. The winning streak appeared to take a breather on Tuesday, with the index edging up just 0.39 percent, but the modest pause has done little to dent bullish sentiment.

While the Kospi continues its upward streak after emerging as last year’s biggest global gainer with a 76 percent rally, Korea’s economic outlook remains subdued.

Growth is projected to remain below 2 percent — supported only marginally by the outperforming semiconductor sector — while the won is extending its weakness from last year, when it posted its weakest annual average against the dollar.

“Macroeconomic indicators are improving thanks to gains in certain sectors, but the growth is not being properly distributed,” said Huh In, an economics professor at the Catholic University of Korea. “While the semiconductor industry is thriving, workers in sectors such as petrochemicals are facing layoffs. Regions that have led these industries are also experiencing widening growth disparities between industries. This gap with the real economy could dampen domestic consumption and potentially spark social unrest.”

Solid yet polarized growth

Kospi’s rally is showing no signs of slowing, but experts caution that gains are concentrated in a handful of sectors, leaving the broader market recovery uneven.

Over the past month, Kospi’s large-cap stocks rose 25 percent while midcap stocks merely rose around 4 percent, according to data from the Korea Exchange. Small-cap stocks barely rose and hovered near zero percent during the same period.

While the semiconductor industry has surged due to the AI boom, industries that once drove Korea’s growth — steel, petrochemicals, batteries and construction — are struggling as cyclical demand softens and the technology gap with China narrows.

The government started discussions on restructuring the petrochemical industry last year, and it has recently also signaled a similar need to do the same for the battery sector amid weakening demand for EVs and China’s slowing growth.

This is a stark contrast to the chip boom that is expected to continue. “The shift from learning to inference and from generative AI to physical AI is only further driving demand for memory semiconductors,” said Hwang San-hae, an analyst at LS Securities.

The fact that the latest chip cycle differs from previous ones also strengthens the fundamentals of the current boom.

“In the current cycle, memory chipmakers such as Samsung Electronics and SK hynix are deliberately controlling supply and creating sustained excess demand,” Hwang added. “By managing output, they can keep prices high, directly boosting margins and reinforcing their position of strength — unlike previous strategies, which focused on revenue growth driven primarily by sales volume.”

Without the chip sector, Korea’s growth is projected to fall short of its potential level.

“While this year’s growth rate is projected at 1.8 percent, which is close to the economy’s potential level, it would fall to just 1.4 percent if the information technology sector were excluded,” said Bank of Korea Gov. Rhee Chang-yong earlier this month.

“Though this year’s economy is expected to be higher than last year’s, the gap between sectors is likely to result in a ‘K-shaped recovery,’ creating a significant difference [between the state of the economy] from the way the economy actually feels [to people].”

The construction site of semiconductor cluster in Yongin, Gyeonggi, on Jan. 20 [YONHAP]

A shifting won-Kospi dynamic

The weakening won — alongside the Kospi’s surge, a pattern evident since last year — is an unusual trend that underscores the evolving role of Korean assets.

Traditionally, the won’s depreciation was seen as negative for the Kospi and often prompted investors to cut their losses and exit the market. But the relationship has flipped, as the won approaches the 1,500 level even as the Kospi nears a record 5,000 points.

“While investors’ risk appetite is improving [as reflected in the Kospi rally], the won is weakening, suggesting that the Korean market is increasingly being treated as a safe-haven asset,” said Prof. Huh.

The trend is also being fueled by a wave of overseas investments by Korean investors. Domestic investors’ holdings of U.S. stocks reached $171.82 billion as of Thursday, up more than $8 billion compared to the end of last year, according to data from the Korea Securities Depository. Tesla was the largest holding, followed by Nvidia and Alphabet, reflecting a concentration in major tech stocks.

Nvidia CEO Jensen Huang, right, Samsung Electronics Executive Chairman Lee Jae-yong, far left, and Hyundai Motor Group Executive Chair Euisun Chung hold up glasses at a Kkanbu Chicken store in Gangnam District, southern Seoul, on Oct. 30, 2025. [NEWS1]

This shift in market dynamics has reshaped how currency movements affect equities.

“Although the value of the won remains volatile, its impact on the stock market has not been severe,” said Huh Jae-hwan, an analyst at Eugene Investment & Securities. That is because corporate earnings in Korea have become increasingly driven by AI-related demand and supply-chain dynamics, unlike in the past when they were heavily influenced by the global economic cycle because Korean companies relied on exports of capital goods and intermediate goods, which are not scarce.

“But the effects of a weak won, which often boosts corporate earnings estimates, are not evenly distributed,” Huh continued. “Industries outside semiconductors are not immune. After the first quarter, earnings estimates for Korean companies excluding chips are unlikely to rise further, as their growth is not strong enough to sustain a weak won unless the global economy improves meaningfully and the exchange rate falls to a more significant degree.”

BY JIN MIN-JI [[email protected]]