Korea Equities: Growth Story Remains Intact
The recent dip in Korean equities, following an impressive rally that outperformed global peers, presents an opportune moment for investors to re-engage with Korea’s compelling growing narrativ...
Chief Investment Office - Hong Kong version8 Apr 2026
  • Recent pullback in Korea equities appears to be driven by profit-taking and temporary risk aversion instead of weakening fundamentals
  • Higher oil prices are a near-term headwind, but policy support and a “look-through” stance from the Bank of Korea should help limit growth damage
  • Earnings outlook remains strong and valuations more attractive; growth is led by semiconductors with momentum broadening to industrials such as defence and shipbuilding
  • Korea’s semiconductor sector (c.44% of KOSPI’s market cap) is well-positioned for the next leg of AI-led demand, supported by tight HBM supply, improving memory ASPs, and potential 2026 EPS upgrades
  • Exposure to Korea stocks can be gained through Korea ETFs, Korea/Asia ex-Japan funds, or ADRs/GDRS
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The recent dip in Korean equities, following an impressive rally that outperformed global peers, presents an opportune moment for investors to re-engage with Korea’s compelling growing narrative. The pullback appears to be a consequence of profit-taking and temporary risk aversion from Middle East tensions rather than the deterioration of underlying fundamentals. While sentiment was weighed down by AI angst as investors reassessed monetisation timelines & capex spending, strong US dollar tightening liquidity & pressuring flows, and concerns over Korea’s high oil dependency amid elevated oil prices, we believe these factors are largely cyclical while Korea’s robust secular growth trends remain intact.

Navigating higher oil price. South Korea has one of the highest fuel import dependencies in Asia. Net fuel imports amounted to around 6% of nominal GDP in 2025. The country sources roughly 70% of its crude oil from the Middle East and about 20% of its LNG from Qatar.

The government has responded with a broad set of stabilisation measures, including fuel price caps and expanded fuel tax cuts. It has also released strategic petroleum reserves to support supply and also, introduced demand-side controls, such as vehicle-use restrictions for the public sector and campaigns encouraging households & firms to reduce fuel consumption. In addition, a supplementary budget of KRW26.2tn has been announced to cushion the economic impact of higher energy prices.

For the Bank of Korea, the key challenge is balancing inflation control against growth risks. The governor has indicated that a supply-driven and potentially temporary oil shock should generally be “looked through.” This implies that rate hikes are not the base case and would likely require more persistent oil price increases, a rise in inflation expectations, and clear second-round effects in wages and prices.

Earnings fundamentals remain strong with attractive valuations. Despite the tension, Korea’s superior earnings growth story remains strong and is now offering more compelling valuations. The market consensus expects Korea equities to achieve more than 100% earnings growth in 2026, propelled by semiconductor earnings upgrade on a prolonged supply deficit and surging AI demand. Its earnings momentum is also broadening to other sectors such as industrials, particularly defence and shipbuilding, benefitting from structural global demand and strong competitiveness.


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