Global investors are demonstrating strong conviction in the South Korean market, buying into a sharp decline driven by severe external shocks.
The turbulence began in late February 2026 with the outbreak of the U.S.-Iran war. This geopolitical event triggered a classic risk-off wave across global markets. First, it sent Brent crude oil prices soaring above $115 per barrel, dealing a heavy blow to major energy importers like South Korea. Second, the shock caused the Korean won to plummet to a 17-year low of around 1,500 per U.S. dollar. This currency weakness mechanically worsened the returns for dollar-based investors and contributed to the iShares MSCI South Korea ETF (EWY) falling over 16% in a single month.
However, instead of fleeing, foreign capital flowed in. This counterintuitive move is rooted in two powerful, long-term narratives that outweigh the immediate macro risks. The first is Korea's central role in the AI memory supercycle. As leaders in high-bandwidth memory (HBM), Samsung Electronics and SK hynix are critical suppliers for the AI industry's insatiable demand. Events like NVIDIA's GTC conference in March reinforced the view that demand and pricing power for Korean memory chips will remain strong for years to come. For these investors, the market sell-off was a rare opportunity to gain exposure to this structural growth story at a discount.
The second pillar of support is the Korean government's "Corporate Value-Up" program. This ambitious initiative aims to resolve the chronic 'Korea Discount'—the tendency for local companies to be undervalued compared to global peers—through improved corporate governance, better shareholder returns, and enhanced disclosures. A key policy update in late February, which linked corporate reform plans to tax incentives, signaled to foreign investors that the government is serious about these changes. This policy backstop provides a crucial layer of confidence, suggesting that Korean equities have a clear path to re-rate higher in the medium term.
In essence, investors are interpreting the current crisis as a temporary dislocation, not a permanent impairment. They are using the EWY ETF, which is heavily weighted towards Samsung and SK hynix, as an efficient tool to execute a high-conviction bet: that the long-term promise of AI and corporate reform will ultimately triumph over short-term geopolitical fears.
- EWY (iShares MSCI South Korea ETF): An exchange-traded fund that tracks the performance of the South Korean stock market, making it easy for international investors to invest in Korean companies.
- HBM (High-Bandwidth Memory): A type of advanced computer memory essential for powering artificial intelligence (AI) processors, with South Korean companies being the leading manufacturers.
- Korea Discount: A term describing the persistent undervaluation of South Korean companies on the stock market compared to their international counterparts, often attributed to issues like weak corporate governance and low dividend payouts.