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The KOSPI has been in a wild ride but many people do not seem to understand it other than the memory boom due to data centers, so I wanted to share some information that is not as well known.
**Three reasons it went from 2600 to 9000 in a year** (you probably didn’t know 2 of them):
1. Samsung and SK Hynix make up \~50% of KOSPI, and there are a lot more semiconductor component companies. The profit of these companies increased over 1000% in a year (you probably know this already).
2. **KOSPI was at 2100 points in the year 2011. It has been flat for 15 years**, while the earnings and book value has been increasing. Even if there was ZERO AI-related earnings and you give KOSPI same valuation as other emerging world indexes, it should have been \~3500. The index was just severely undervalued before 2^(nd) half of 2025.
3. **Major reason Korean stock was undervalued was because shareholders had almost 0 legal rights over company until 2****^(nd)** **half of 2025.** Korean law stated that the “board of directors has to be loyal to the company.” However, there was a case in 2015 where Lee family of Samsung tried to inherit control of Samsung electronics cheaply by tanking one of the subsidiaries and merging it with another subsidiary that he has higher control of. The shareholders sued the family, but the court ruled: **the law states the board has to be loyal to the company, but no law states it has to be loyal to the shareholders. Tanking stock price does not hurt the company, therefore it is legal.** After this debacle, it has been an open season for controlling families to just tank company shares for fun (get into bad debt, make a mining company invest in kpop start-up, donate to charity they found, etc…). Essentially, the company shares had no intrinsic value even if companies were valuable and looking at PE or PB ratio was meaningless. Then June 2025, the current president (Lee JaeMyoung) got elected in its presidential election and one of his major promise was to raise KOSPI to 5000 within his presidency. So when he was elected, he added the line “board has to be loyal to the company and the shareholders.” Technically, this law was passed by the congress before him, but the previous president vetoed it. After this and a few other reforms concerning corporate governance, shares actually had intrinsic value allowing them to go up in price without fear of controlling families intentionally destroying the stocks.
**Here’s why it dropped from 9000 to 5600 in a month**. I am sure everyone knows about the macro issues and worries about hyperscalar FCF and CXMT so I will skip that part and discuss the supply&demand issue of Korean stocks. There are three parties that buy Korean stocks: 1. Korean institution (mainly the national pension fund), 2. Foreigners, 3. Korean retail.
1. Korean national fund originally had KOSPI allocation to **14.9%** of its fund. However, their actual holdings got to **30%** of the fund by June, 2026. Normally, they were supposed to trim KOSPI as it shot up but they did not do it and even officially declared they will increase their allocation to 20.8%. While it is not officially known why they made this decision, many people suspect it was politically motivated. Korea had their midterm election in June 2026 (last month). Since the current president is so heavily tied to KOSPI, maybe the government pressured them to wait until election is over to rebalance the pension fund. It was estimated that the pension has to sell $50\~100B of KOSPI. This was discussed heavily among everyone even in April and May and spooked investors (is the pension going to dump KOSPI right when election is over?) Now, some of this just conspiracy and the drop in KOSPI to 8000 with the increased allocation to 20.8% relieved a lot of the rebalancing pressure. But sentimentally, this was a heavy burden and also it prevented the pension from stepping in and stabilizing the market which they usually do when this kind of drop in KOSPI happens.
2. In similar vein, foreign funds also were over-allocated to KOSPI as the index doubled in six months. Most funds have some allocation to emerging market (let’s say 10% +/- 5% of fund) and they get in legal trouble with their investors if they do not keep this. Korea reports everyday the net position of the three groups (foreigner, Korean institution, Korean retail), and all foreigners were massively net selling for months as KOSPI was going up this year. One possible solution was for KOSPI to move from MSCI emerging market to MSCI developed market. However, it was announced June 23, 2026, that KOSPI will remain in the emerging market index.
3. Korean retail was over-leveraged. 1.2 million accounts were margin called past month and some people estimate 1 in 30 of Korean citizens got margin called. A lot of these people started investing this year, but decided to put their entire life saving and margin invest with their house as collateral into leveraged ETF (which was also created May 27, 2026).
So while there are some legitimate worries about the memory stocks, a lot of recent drop seems like just heavy concentration and leverage similar to the Situational Awareness fund situation. One evidence is that KOSPI rose 18% in a day after SA and massive amount of Korean retails got liquidated, perhaps signaling that the concentration is somewhat relieved. Also, many say the National Pension no longer need to rebalance because the index dropped so much.