In a dramatic reversal from its recent historic bull run, the South Korean KOSPI index has plummeted nearly 8%, dipping below the 7,000-point mark (at the time of writing this article). This sudden decline stands in stark contrast to the index’s performance over the past year, during which it more than doubled and surged past 8,000 points on the back of a semiconductor supercycle and government reforms.\u00a0 <\/p>\n
For long-term investors, this sharp pullback represents an opportune moment to increase exposure to South Korean stocks, and by extension, the exchange-traded funds (ETFs) that hold them.\u00a0 <\/p>\n
However, before exploring these investment vehicles, it is prudent to examine the factors behind this decline and the catalysts that could drive the South Korean equity market going forward, as discussed below, to help investors make more informed investment decisions. <\/p>\n
What Caused the Sudden Plunge? <\/p>\n
The KOSPI’s steep decline can be attributed to a confluence of headwinds. The primary driver is a deepening rout in technology stocks, fueled by concerns over high artificial-intelligence (AI)-related valuations and the pace of returns on massive capital expenditures.\u00a0 <\/p>\n
Notably, tech giant Samsung Electronics has been sliding since last week. Even though its July 7th preliminary earnings report beat expectations with record profits, the stellar results weren’t enough to calm broader market anxieties. Instead, it triggered an aggressive wave of profit-taking across the entire semiconductor sector. <\/p>\n
Shares of SK Hynix, another primary growth driver for KOSPI, plummeted over 10% in Seoul as investors aggressively locked in gains following its spectacular Nasdaq debut on Friday. Together, these two heavyweights, which have been contributing nearly 90% to KOSPI’s gains earlier, caused the majority of the index’s plunge. <\/p>\n
This was further compounded by escalating geopolitical tensions in the Middle East, which spiked oil prices and drove a flight to safety among global investors. Meanwhile, investor confidence was hit by reports that the U.S. Commerce Department is pushing South Korean chipmakers to build more fabrication plants domestically, sparking fears of increased corporate costs and supply-chain restructuring. <\/p>\n
Will South Korea Rebound? <\/p>\n
It is imperative to note that the latest downturn in South Korean stocks follows a period of astonishing growth. Not long ago, prior to this correction, the KOSPI was among the world’s best-performing markets, driven by an AI-fueled memory chip supercycle. The rally was further supported by the government’s “Value-up Program,” a series of corporate governance reforms aimed at ending the long-standing “Korea Discount” and boosting shareholder returns.\u00a0 <\/p>\n
Story Continues <\/p>\n
These are some factors that are going to persist over the long term and should help the South Korean equity market rebound in the days ahead.\u00a0 <\/p>\n
In line with this, leading financial institutions like Goldman Sachs maintain a strongly bullish long-term outlook for Seoul’s stock market. Notably, Goldman Sachs Research’s Asia Pacific regional equity strategists raised their 12-month KOSPI target to a roaring 12,000 in June 2026, from 9,000 predicted in May 2026, projecting a staggering 320% earnings growth for the market.\u00a0 <\/p>\n
To this end, these strategists expect memory manufacturers’ shift toward three- to five-year long-term supply agreements to sustain elevated profitability for longer than the equity market currently anticipates. <\/p>\n
Given this semiconductor memory supercycle, combined with the high operating leverage carried by domestic memory producers, impending price stability should quickly translate into outsized bottom-line growth, ultimately sparking a sharp recovery for Seoul’s benchmark index. <\/p>\n
ETFs to Consider <\/p>\n
Considering the long-term growth outlook of the South Korean stock market, investors can capitalize on the recent pullback by taking a diversified approach through the following ETFs to gain broad exposure to the market. <\/p>\n
iShares MSCI South Korea ETF EWY <\/p>\n
This fund, with net assets worth $21.85 billion, offers exposure to 78 large and mid-sized companies in South Korea. SKHY holds the first position in this fund with 25.13% weightage, while Samsung Electronics holds the second position with 22.25% weightage.\u00a0 <\/p>\n
EWY has soared 150.7% over the past year. The fund charges 59 basis points (bps) as fees and traded at a good volume of 20.02 million shares in the last trading session. <\/p>\n
Franklin FTSE South Korea ETF FLKR\u00a0\u00a0 <\/p>\n
This fund, with net assets worth $1.29 billion, offers exposure to 157 large and mid-sized companies in South Korea. SK Hynix holds the first position in this fund with 23.97% weightage, while Samsung Electronics holds the second position with 17.21% weightage.\u00a0 <\/p>\n
FLKR has surged 140.3% over the past year. The fund charges 9 bps as fees and traded at a volume of 0.44 million shares in the last trading session.\u00a0\u00a0 <\/p>\n
Matthews Korea Active ETF MKOR\u00a0\u00a0 <\/p>\n
This fund, with net assets worth $137.6 million, seeks to achieve its investment objective by investing at least 80% of its net assets, including borrowings for investment purposes, in the common and preferred stocks of companies located in South Korea. Samsung Electronics holds the first position in this fund with 19% weightage, while PSK Inc. holds the second position with 4.3% weightage.\u00a0 <\/p>\n
MKOR has rallied 116.8% over the past year. The fund charges 79 bps as fees and traded at a volume of 0.02 million shares in the last trading session.\u00a0\u00a0 <\/p>\n
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report<\/a> <\/p>\n iShares MSCI South Korea ETF (EWY): ETF Research Reports<\/a> <\/p>\n Franklin FTSE South Korea ETF (FLKR): ETF Research Reports<\/a> <\/p>\n This article originally published on Zacks Investment Research (zacks.com).<\/a> <\/p>\n