Summary of Key Points
The South Korean stock market has experienced a "crazy rise" in the past year: from its lowest point in April 2025 to June 2026, the composite index increased by 270%, pushing the total market value to sixth place globally. Leading semiconductor companies such as Samsung and SK Hynix (which saw a 825% increase in one year) have driven a nationwide fever for stock trading. On average, each person has nearly two stock accounts, with one-third of the population directly participating in trading, and even the number of underage investors has increased tenfold. However, the market structure is imbalanced (with leading stocks accounting for over 50%), posing a risk of a bubble. In early June, a sharp 5.54% drop in the index triggered a circuit breaker, with some individual investors getting trapped in high-priced small-cap stocks. Foreign capital has begun to reduce its holdings due to excessive weight in the market, and institutions have warned that "the crazier the rise, the harder the fall."
I. Why Did the South Korean Stock Market Rise So Much? – AI Momentum + Policy Support
The surge in the South Korean stock market was driven by two main factors:
1. Seizing the "gold rush" of AI: Samsung and SK Hynix are global leaders in memory chips (high-bandwidth RAM and DRAM, essential for AI), holding 70%-80% of the global market share. With the AI boom, demand for these chips surged, driving up their prices significantly (SK Hynix' stock price increased by more than eightfold from June last year to June this year).
2. Policy measures directing funds from real estate to the stock market: President Lee Jae-myeong's reforms directed previously invested capital in real estate towards the stock market. Coupled with South Korean chaebols (such as Samsung and SK) controlling the tech industry, the rise in leading stocks propelled the overall market.
In short, South Korea has both the core technologies needed for AI development and policy support that made it difficult for the market not to soar.
II. How Crazy Is the Nationwide Stock Trading Craze?
South Koreans' enthusiasm for trading is comparable to China's "national fund-buying" phenomenon:
- More accounts than people: As of February 2025, there were 102 million active stock accounts, compared to a total population of 51.6 million—meaning each person has nearly two accounts, with one-third directly trading (compared to only 7% in 2020).
- Youth involvement: In the first quarter of this year, the number of new accounts opened by people under 18 increased tenfold, with even students secretly checking market trends during classes.
- Stock trading as a workplace norm: In department stores in Seoul's Gangnam district, employee restrooms are crowded at 3:30 PM with people using stock apps, fearing to miss last-minute trades.
- Individual investors' behavior: New traders like Zhang Yan typically engage in short-term transactions (holding stocks for a few days to half a month) or buying and selling on the same day. Some, out of FOMO (fear of missing out), rush into the market without proper understanding.
III. The Polarized Stock Market: Some Profit Big, Others Get Trapped
Despite the sharp rise in the market, not everyone benefited:
- Winners from leading stocks: Someone named Jiang Cheng started buying Samsung and SK Hynix in 2021 at prices of 76,000 and 128,000 Korean won respectively; now Samsung is near 350,000 won, and SK Hynix is over 2 million won, allowing him to make a substantial profit (and he has already reduced his holdings to lock in gains).
- Losers from small-cap stocks: Xu Bing, an international student, bought into a newly listed AI-related stock at its peak of 87,000 won but saw it drop to 28,000 won. She continued to add to her position, resulting in a loss of nearly half her investment (with a cost of 53,000 won).
- Imbalanced market structure: After May, funds concentrated in leading stocks, causing small-cap stocks to fall sharply, creating a "10% gain, 90% loss" scenario. Zhang Yan commented, "A healthy market should see balanced performance across sectors; the current situation is too extreme."
IV. Are We Facing a Bubble? – Institutions Warn, Foreign Capital Leaves
Signs of a bubble in the South Korean stock market are becoming evident:
- Circuit breaker triggered by a sharp drop: On June 5, the composite index fell 5.54%, with SK Hynix and Samsung dropping by 9.92% and 6.64% respectively, triggering a five-minute trading halt.
- Forced reduction in foreign holdings: Since Samsung and SK Hynix account for over 50% of the market value, foreign funds (which are limited to a 25% holding limit) were forced to sell these stocks, leading to price declines.
- Historical pattern: According to Huatai Securities, South Korea's markets have seen short bull markets followed by long bear markets. Once the drivers of the bull market (e.g., declining AI demand or foreign capital withdrawal) reverse, prices plummet quickly.
- Fiscal Minister's concern: On June 4, the South Korean Finance Minister expressed worry about increased leverage in trading and the potential for herd behavior (everyone buying/selling in unison).
V. What's the Future? – Optimism and Caution Coexist
There are two perspectives on the future of the South Korean stock market:
- Optimists (e.g., Goldman Sachs): Expecting the index to rise to 12,000 points from the current level of over 8,000, arguing that AI will drive sustained growth in tech hardware profits and South Korea's profit growth to lead Asia (320%). They also acknowledge the risk of market concentration.
- Cautions (e.g., Jiang Cheng): Predicting a possible further rise within half a year, but a potential correction to around 5,000-6,000 points by the end of 2026 or 2027, suggesting waiting and accumulating cash.
In summary, the South Korean stock market is like a pig on the wind: if the wind stops, it could fall heavily. Individual investors who are uninformed and blindly chase high prices risk becoming the ones to absorb the losses.