South Korea's Kospi emerges as the biggest winner of the global AI shakeup

Kospi’s sharp rally has been driven by strong momentum in AI-linked sectors

At a time when the global AI race has rattled markets, South Korea has emerged as the standout performer so far in 2026. Kospi index has surged 45 percent so far this year, crossing the 6,000 mark for the first time, barely two months into 2026.

The rally is being powered by heavy institutional interest, as South Korea sits at the heart of the global advanced memory-chip supply chain: a key pillar of the AI ecosystem. In contrast, US markets have struggled under the weight of high valuations, while India has lagged, already being seen by some investors as a late entrant in the AI race.

Among major markets, South Korea leads the pack, followed by Taiwan and Japan’s Nikkei and Topix indices. US benchmarks have remained muted, the Nasdaq has slipped about 1 percent, while the Dow Jones and S&P 500 have posted only marginal gains. Indian and Indonesian markets sit near the bottom of the performance table so far this year.

What’s driving Kospi higher?

Kospi’s sharp rally has been driven by strong momentum in AI-linked sectors such as semiconductors, defence and advanced manufacturing, along with government-led efforts to improve corporate governance and shareholder returns.

Institutional participation has also broadened. According to Nomura, 55 percent of funds turned overweight on South Korea in January 2026, up from 52 percent a month earlier. Meanwhile, underweight positions fell to 37 percent from 34 percent, and neutral stances dropped sharply to 8 percent from 15 percent.

Nomura has projected Kospi to reach 8,000 in the first half of 2026, implying nearly 30 percent upside from current levels. The brokerage expects strong earnings in the memory-chip sector and improving corporate value to drive the next leg of the rally. Memory companies are expected to account for over 60 percent of South Korea’s total net profit this year.

Similarly, JPMorgan has raised its base and bull-case targets for Kospi to 6,000 and 7,500, respectively.

The brokerage estimates that around 60 percent of Kospi’s gains since September 2025 have been led by Samsung Electronics and SK Hynix and now the momentum will broaden, with defence, shipbuilding and power equipment sectors set to deliver over 20 percent earnings growth.

Foreign investors lock in gains

Despite strong institutional participation, foreign portfolio investors (FPIs) have been net sellers in South Korean equities this year. Bloomberg data shows net outflows of $6.37 billion so far in 2026, as investors book profits after the sharp run-up.

Harshal Dasani, Business Head at INVasset PMS, said valuations in key semiconductor stocks have expanded significantly, prompting investors to rotate capital back to dollar assets amid elevated global bond yields and a restrictive US Federal Reserve stance.

“The Korean won’s volatility has also made returns less predictable for foreign investors,” Dasani said. “This is more about portfolio rebalancing than pessimism. After heavy inflows between 2023 and 2025 on the AI theme, investors are now monetising gains and reallocating to markets where earnings recovery is becoming more broad-based.”

He added that concerns around export dependence, slowing Chinese demand, and cyclical margins in memory chips have also tempered near-term enthusiasm. “This is not a vote against Korea’s structural story, but a classic case of profit-booking after a concentrated, momentum-driven rally,” he added.