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Kospi tops 5,000, but ascent precarious on shaky real economy

Published: 22 Jan. 2026, 19:05 Updated: 22 Jan. 2026, 19:30

JIN MIN-JI
[email protected]

Currency traders celebrate as they work in the office with a screen showing the Kospi, center, of over 5,000 points at the foreign exchange dealing room of the Hana Bank headquarters in central Seoul on Thursday. [AP/ YONHAP]

The Kospi broke 5,000 points on Thursday for the first time since its launch 46 years ago, marking a meteoric climb just three months after it first crossed 4,000.

Despite reaching the symbolic 5,000-point milestone, deteriorating fundamentals in the real economy and a sharply weakening won temper any sense of triumph.

The Kospi hit 5,019.54 points during trading before closing up 0.87 percent at 4,952.53, led largely by retail investors who net purchased 156.4 billion won ($108 million) worth of shares.

After the benchmark index surpassed 3,000 points in January 2021 — more than 13 years after it first broke the 2,000 mark — it reached 4,000 points in less than five years. The jump to 5,000 points came even faster, taking just three months.

Despite this rapid rise, experts generally attribute the surge to solid corporate earnings growth fueled by a narrow set of large-cap companies like Samsung Electronics, SK hynix and Hyundai Motor, as well as investor-friendly policies aimed at addressing the “Korea discount” — the chronic undervaluation of Korean stocks caused by factors such as geopolitical uncertainties.

“The previously undervalued aspects are now finding their proper place as regulations, corporate ethics and related frameworks evolve,” said Kim Sang-bong, an economics professor at Hansung University. “It’s not a short-term spike. Considering the past years of a weak Kospi — excluding last year — there is still room for further growth.”

Mixed moods

The record came the same day as the announcement that the country's GDP in the fourth quarter of last year contracted by 0.3 percent, far below the Bank of Korea's projection. The chronically weak won also indicates reduced foreign investor confidence in won-based assets and the country's overall economic fundamentals.

The market gains have been driven by a few dominant players like Samsung Electronics and SK hynix, which together account for more than 35 percent of Kospi’s total market capitalization.

Samsung Electronics — the world’s largest memory chipmaker — posted a new quarterly record for operating profit in the October–December period, reaching 20 trillion won, driven by tight supply and a surge in AI-related demand that boosted prices for conventional memory chips. SK hynix’s operating profit for the same period is also expected to hit a record high of 15 trillion won.

While the chip sector has been the main driver of growth, the rally has recently broadened across multiple sectors, including automobiles. Shares of Hyundai Motor and Kia have soared 77 percent and 36 percent, respectively, since the beginning of the year.

Some analysts attribute Korea’s rising market appeal to a combination of strong semiconductor exports and a weak won, which has made the domestic market more attractive to foreign investors.

The International Monetary Fund projects Korea’s economy to expand 1.9 percent this year, up from 1.8 percent in its October outlook, and above the 1.8 percent average growth forecast for advanced economies.

Breaking the usual inverse relationship between the Kospi and the exchange rate, the won has remained weak around the 1,400 level since last year, making Korean assets cheaper against the U.S. dollar for foreign investors.

“There’s been a lot of emphasis on the connection between AI and manufacturing,” said Hwang San-hae, an analyst at LS Securities. “Previously, companies like chipmakers and automakers were simply classified under manufacturing. Now, however, their connection to AI is driving an upward re-rating.”

Still, other analysts say the growth is solid, driven by strong corporate earnings in the semiconductor sector and market-friendly policies designed to make the stock market more attractive, including measures to strengthen shareholder rights and reform dividend taxation.

They point to robust demand for memory chips in the AI era as the main driver of the Kospi rally.

“The recent rally is not concerning because it’s really just a matter of market composition,” added Hwang. “Globally, the areas that benefit most from the AI value chain are essentially the same: memory chips. In Korea, these companies have a larger weight than in the United States, which explains the steeper gains of the index.”

However, some critics argue that this concentration could pose a risk, potentially dragging down the entire index if an AI-driven bubble were to emerge.

An employee at Hana Bank in central Seoul celebrates the Kospi's milestone in its dealing room in central Seoul as it surpassed the 5,000 points for the first time on Thursday. [YONHAP]

The key to resolving 'Korea discount'

The Kospi surpassed the milestone of 5,000 points for the first time since the index launched at 100 points in January 1980. It is a landmark achievement expected to reinforce the Korean market’s standing as more sophisticated in the eyes of global investors.

“The breakthrough can be seen as a historic moment,” said Lee Won, an analyst at Bookook Securities. “Although Korea has not yet entered the Morgan Stanley Capital International Developed Markets Index, this milestone could help the country move closer to the ranks of upper-middle-income or advanced markets that largely move in step with major developed economies, particularly the United States, and help address the valuation discount that has long been applied to Korean stocks.”

Since starting at 100 points 46 years ago, it first surpassed 1,000 points in 1989, driven by strong economic growth following the Seoul Asian Games and the Olympics. The market began to expand further in 1992, when foreign direct investment was fully allowed, opening the domestic market to global investors.

Although it experienced sharp declines after the 1997 Asian Financial Crisis, the dot-com bubble in the early 2000s and the impacts of the September 11 attacks, the index reached 2,000 points in 2007, fueled by rapid economic recovery and a surge in fund investments.

Since then, the index has remained in the 2,000-point range amid challenges such as the 2008 global financial crisis and U.S.-China trade tensions. It was only in 2020 that the index climbed to the 3,000-point level following a surge in retail investor activity during the Covid-19 pandemic, when expanded market liquidity directed funds into the stock market.

Despite weak market sentiment triggered by the declaration of martial law in late 2024, the Kospi began to recover following the inauguration of the new administration in June last year, which had pledged during the presidential campaign to bring the index to 5,000 points.

BY JIN MIN-JI [[email protected]]