Skip to content

CONTRIBUTORS

Christy Tan

Managing Director
Senior Investment Strategist
Franklin Templeton Institute

South Korea remains one of Asia’s most compelling equity stories, but it is no longer a simple “buy the index” market. The rally has been powered by an artificial intelligence (AI)-led semiconductor earnings cycle, political stabilization and strong retail participation. Yet the recent selloff, together with MSCI’s decision to keep South Korea within its emerging markets classification, is a reminder that the upside is real, but so are the structural limits.

This is a tale of the peacock and the horangi, with the glittering semiconductor champions on one side, and the sleeping Korean tiger on the other.

The peacock is easy to see. The memory supercycle is undeniable, and AI-driven demand for high-bandwidth memory has transformed the earnings outlook. Samsung’s 2026 EBIT consensus has reportedly moved from roughly +137% year-on-year at the start of the year to around +700% year-on-year today.1 But investors should resist treating Samsung and SK Hynix as interchangeable AI proxies. SK Hynix remains better positioned in high-bandwidth-memory leadership, while Samsung’s execution gap is still a key differentiator.

The issue is that the index has become increasingly narrow. Samsung and SK Hynix now account for around 53% of South Korea’s KOSPI, and stripping them out, the rest of the market returned only about 5% in May, versus 29% for the overall index.2 That is not broad market strength; it is concentrated semiconductor momentum.

And therein lies the sleeping horangi. Beneath the index giants, much of ‘Korea Inc.’ remains deeply undervalued. Around two-thirds of listed companies trade below book value, and roughly 41% trade below 0.5 times book.3 This is where I think the more interesting medium-term opportunity may sit: not in chasing crowded mega-cap semiconductors, but in identifying well-capitalised, quality companies that have yet to be re-rated.

The opportunity set extends beyond chips. Defence, shipbuilding, nuclear, robotics, power equipment and other beneficiaries of US reindustrialisation and global supply-chain investment offer cleaner exposure to Korea’s strategic relevance. These sectors allow investors to participate in the country’s rising geopolitical and industrial importance without relying entirely on semiconductor momentum.

Portfolio discipline is now essential. The recent volatility showed how quickly single-stock leveraged exchange-traded funds and derivatives can turn normal profit-taking into forced mechanical selling. Korea’s leveraged retail flows have become a market structure risk, not just a sentiment indicator. That argues for smaller position sizes, staged entry points, tighter risk controls and hedges around crowded semiconductor holdings.

The bottom line: South Korean equities still deserve attention, but the playbook is changing. Own the peacock selectively but start looking for the horangi.

Endnotes

  1. EBIT=earnings before interest and taxes. Source: Asset Value Investors / AVI Global Trust May 2026 newsletter, “Beyond Memory: AVI’s Korea Opportunity Capital IQ. As of May 2026.
  2. Source: MarketWatch, June 18, 2026. Asset Value Investors as of May 2026. The KOSPI (Korea Composite Stock Price Index) is the primary benchmark stock market index of South Korea, tracking all common shares traded on the main board of the Korea Exchange. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results.
  3. Source: Asset Value Investors, Capital IQ. As of May 2026. The Korea Times, as of June 25, 2026.

 

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

The allocation of assets among different strategies, asset classes and investments may not prove beneficial or produce desired results.

Equity securities are subject to price fluctuation and possible loss of principal.

Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls.

International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.

Commodity-related investments are subject to additional risks such as commodity index volatility, investor speculation, interest rates, weather, tax and regulatory developments.

WF: 11144409

Copyright ©2025. Franklin Templeton. All rights reserved.

This document is intended to be of general interest only. This document should not be construed as individual investment advice or offer or solicitation to buy, sell or hold any shares of fund. The information provided for any individual security mentioned is not a sufficient basis upon which to make an investment decision. Investments involves risks. Value of investments may go up as well as down and past performance is not an indicator or a guarantee of future performance. The investment returns are calculated on NAV to NAV basis, taking into account of reinvestments and capital gain or loss. The investment returns are denominated in stated currency, which may be a foreign currency other than USD and HKD (“other foreign currency”). US/HK dollar-based investors are therefore exposed to fluctuations in the US/HK dollar / other foreign currency exchange rate. Please refer to the offering documents for further details, including the risk factors.

The data, comments, opinions, estimates and other information contained herein may be subject to change without notice. There is no guarantee that an investment product will meet its objective and any forecasts expressed will be realized. Performance may also be affected by currency fluctuations. Reduced liquidity may have a negative impact on the price of the assets. Currency fluctuations may affect the value of overseas investments. Where an investment product invests in emerging markets, the risks can be greater than in developed markets. Where an investment product invests in derivative instruments, this entails specific risks that may increase the risk profile of the investment product. Where an investment product invests in a specific sector or geographical area, the returns may be more volatile than a more diversified investment product. Franklin Templeton accepts no liability whatsoever for any direct or indirect consequential loss arising from use of this document or any comment, opinion or estimate herein. This document may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

Any share class with “(Hedged)” in its name will attempt to hedge the currency risk between the base currency of the Fund and the currency of the share class, although there can be no guarantee that it will be successful in doing so. In some cases, investors may be subject to additional risks.

Please contact your financial advisor if you are in doubt of any information contained herein.

For UCITS funds only: In addition, a summary of investor rights is available from here. The fund(s)/ sub-fund(s) are notified for marketing in various regions under the UCITS Directive. The fund(s)/ sub-fund(s) can terminate such notifications for any share class and/or sub-fund at any time by using the process contained in Article 93a of the UCITS Directive.

For AIFMD funds only: In addition, a summary of investor rights is available from here. The fund(s)/ sub-fund(s) are notified for marketing in various regions under the AIFMD Directive. The fund(s)/ sub-fund(s) can terminate such notifications for any share class and/or sub-fund at any time by using the process contained in Article 32a of the AIFMD Directive.

For the avoidance of doubt, if you make a decision to invest, you will be buying units/shares in the fund(s)/ sub-fund(s) and will not be investing directly in the underlying assets of the fund(s)/ sub-fund(s).

This document is issued by Franklin Templeton Investments (Asia) Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong.

Unless stated otherwise, all information is as of the date stated above. Source: Franklin Templeton.

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.