Record Kospi masks narrow gains beyond chip giants

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Record Kospi masks narrow gains beyond chip giants

Published: 06 Feb. 2026, 00:03

Audio report: written by reporters, read by AI

Kim Hak-kyun

The author is the head of the research center at Shinyoung Securities.

Warmth in the global economy rarely spreads evenly. Some sectors enjoy abundance while others endure scarcity. Korea’s stock market and real economy now reflect this contrast. The benchmark Kospi has climbed into the 5,000-point range, marking a historic leap, yet the broader economy remains mired in stagnation. The coexistence of market euphoria and public anxiety has fueled debate over whether rising share prices are detached from economic fundamentals and whether the rally is sustainable.

The KOSPI index is displayed on an electronic board in the dealing room at Hana Bank headquarters in Jung District, central Seoul, on Feb. 3, when the benchmark index closed at 5,288.08, up 338.41 points from the previous session and marking a record closing high. [NEWS1]

While the gap between economic conditions and stock performance is real, the argument that the stock market represents a bubble is less convincing. The reason lies in the difference between economic indicators and corporate earnings that investors focus on.

By gross domestic product standards, economic performance has been weak. Korea’s GDP growth last year barely exceeded 1 percent, the fifth-lowest rate since the country entered full-scale industrial development in the 1960s. Growth is projected to recover to around 2 percent this year, roughly matching potential growth, but this still represents historically low performance. Unlike past slowdowns triggered by shocks such as the second oil crisis, the 1997 Asian financial crisis, the global financial crisis or the Covid-19 pandemic, the recent deceleration has occurred without a single defining external shock, suggesting deeper structural challenges.

Korea’s exports in January 2026 rose more than 30 percent from a year earlier, extending an eight-month streak of year-on-year growth driven by strong semiconductor demand. The photo shows import and export containers stacked at the Incheon New Port container terminal on Feb. 1. [NEWS1]

GDP measures total economic activity within a nation’s borders, making it an appropriate gauge of domestic demand. Private consumption accounted for 48 percent of Korea’s GDP in 2025, followed by government spending at 22 percent. Construction and facility investment represented 11.2 percent and 9.5 percent, respectively. These components indicate that more than 90 percent of Korea’s GDP is tied to domestic economic activity.

The outlook for domestic demand remains bleak. Private consumption, the largest economic pillar, is constrained by heavy household debt tied to real estate. With funds locked into housing and loan repayments rising, households have limited room to increase spending. Meanwhile, Korea’s modern infrastructure, built during its rapid development, limits the effectiveness of large-scale construction projects as a stimulus tool. The direct cause of Korea’s recent GDP slowdown has been weak construction investment, which declined for five consecutive years from 2021 through 2025, an unprecedented trend.

Corporate investment presents another concern. Large conglomerates continue to invest aggressively, but increasingly direct their spending overseas. Commitments, including roughly $350 billion in investment in the United States, have fueled concerns about capital outflow and potential hollowing out of domestic manufacturing.

Exports tell a very different story. Korea’s exports reached $69.5 billion in January, a 34 percent increase from a year earlier. Semiconductor shipments have driven the surge, and the stock market largely reflects the semiconductor cycle. The Kospi closed at 5,288 points on Tuesday, a record high. Excluding semiconductor leaders Samsung Electronics and SK Hynix, however, the index would stand near 4,225 points, more than 1,000 points lower.

Viewed through the lens of sluggish domestic demand, even a Kospi level in the 4,200 range might appear elevated. Yet share prices of domestic demand-oriented sectors remain far below historical peaks. The food and beverage industry index stood at 4,653 points as of Tuesday, compared with its all-time high of 6,299 points recorded in August 2015. Retail stocks are trading at about 67 percent of their historical peak set in January 1990, while textile and apparel stocks remain near 20 percent of their 1994 high. Construction, paper and timber indices, which peaked in 1995, currently trade at roughly 19 percent and 15 percent of their historical highs, respectively.

These trends suggest that domestic demand-oriented industries have closely tracked the long-term weakness of the local economy. The stock market is not irrational. The bubble narrative loses credibility when sectors tied to domestic demand have produced returns that barely match bank deposit interest over decades. For the same reason, interpreting the Kospi’s rise as a signal of a bright economic future is also questionable. The index largely reflects the performance of globally competitive exporters rather than the overall economy.

Export-driven conglomerates led by semiconductor and automotive firms remain the backbone of Korea’s economy. Yet the channel through which their strong earnings stimulate domestic demand is narrowing. A major factor is the shift in investment patterns. During globalization, companies expanded overseas to seek better opportunities. In today’s era of deglobalization, pressure from the United States to build production facilities domestically has further accelerated outward investment.

Income inequality between large corporations and smaller firms reinforces the divide. Employees at export giants benefit from high-performance bonuses that support consumption. Workers at small and medium-sized enterprises, which account for more than 85 percent of employment, often see little of this income growth. The imbalance is clearly reflected in capital markets. While the Kospi continues to set record highs, the tech-heavy Kosdaq index, dominated by smaller companies, remains at roughly 40 percent of its historical peak.

Past policy attempts have sought to address these disparities. The corporate earnings recirculation tax introduced in 2014 under the Park Geun-hye administration required large firms to allocate a portion of net income to dividends, investment or wage increases or face penalties. The policy aimed to redistribute corporate wealth across the broader economy, representing an unusually aggressive measure for a conservative government.

The construction industry has seen a sharp decline in new hires amid the economic slowdown. According to Statistics Korea’s national statistical portal, employment in the construction sector has decreased each year. The photo shows a construction site at an apartment complex in Seoul. [NEWS1]

Another way to share corporate prosperity is through stock ownership. In a system where stock performance and economic growth diverge, becoming investors may provide individuals with an opportunity to benefit from corporate success. Given widening disparities between domestic demand and exports, investing in globally competitive companies could offer relative advantages.

Stock investment, however, carries risks. Market cycles inevitably bring downturns that test investors’ patience. Despite volatility, stock markets have demonstrated strong resilience. Individual stock investments can produce widely varying outcomes, but long-term investment in market indices has rarely produced catastrophic losses. Even amid persistent pessimism about Korea’s economy, the Kospi has not declined for two consecutive years at any point since 2000.

Stocks are risk assets, yet new small business ventures carry comparable uncertainty. Nearly half of new self-employed businesses close within three years, a failure rate comparable to widespread delistings in the stock market. Investment should therefore be undertaken with surplus funds capable of weathering downturns lasting three to four years.

International examples highlight efforts to broaden wealth through equity ownership, including Sweden’s wage earner funds, Britain’s ownership society policies and corporate governance reforms under Japan’s Abe administration. Becoming shareholders offers one way to share in the achievements of globally competitive Korean companies. Whether such thinking represents mere speculation from a veteran market analyst or a realistic path toward broader prosperity remains open to debate.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.