Kospi Slides on Middle East Escalation Fears, but Semiconductor Supercycle and Reform Story Stay Intact

Kospi Tumbles on Middle East Fears, Won Hits 17-Year Low

As of 11:30 a.m. today, the Kospi slid to around 5,492 as fears of a wider Middle East war rattled the market. Foreign and institutional investors each net sold more than 2.3 trillion won, driving the decline, while retail investors net bought nearly 4 trillion won and cushioned some of the drop. Samsung Electronics fell 5.6% to around 188,000 won and SK Hynix dropped 6% to around 940,000 won, while the Kosdaq slipped to around 1,116.

The won-dollar exchange rate broke above 1,509 won intraday, its highest level in 17 years. The hosts advised that in a volatile session like this one, it's better to set a response plan in advance for further declines and hold off on trading rather than react hastily.

Brokerages Keep Raising Their Year-End Kospi Targets

Domestic brokerages' average year-end 2026 Kospi target has recently climbed to around 7,500, sharply higher than the roughly 4,900 average forecast at the start of the year. The hosts noted that earnings and stock prices eventually converge without a lasting gap, and pointed to record-breaking results at Samsung Electronics and SK Hynix as the core reason for the upgrades.

They also cited companies starting to deploy their cash piles through dividends and investment, spurred by the separate taxation of dividend income, treasury share cancellations, and the revised Commercial Act, as a re-rating catalyst. Combined with a bigger domestic equity allocation from the National Pension Service and retirement pensions, capital returning from overseas stocks, and potential inflows shifting out of real estate, they argued there is ample room for the market to rise on flows as well.

Semiconductors: From Boom-Bust Cycle to Structural Growth

Semiconductor exports totaled $18.7 billion in the first ten days of this month, up 164% year over year. The hosts explained that because the AI era is fundamentally about technological innovation that lowers production and computing costs, related investment is bound to continue rather than fade as a passing trend.

As the computing power AI models demand outpaces the growth in hardware performance, memory chips are stepping in to close that gap — a phenomenon known as the 'memory wall.' With Samsung Electronics, SK Hynix, and Micron together holding about 92% of the market and China effectively locked out of entry, supply is struggling to keep up with surging demand.

That, the hosts argued, means the memory chip industry should now be seen as a demand-driven structural growth story rather than the supply-driven boom-bust cycle of the past. SK Hynix Chairman Chey Tae-won recently said the supply shortage could persist through 2030, and brokerages have repeatedly raised their 2026-2028 operating profit forecasts for both Samsung Electronics and SK Hynix.

Growing Wariness Over a Possible Rate Hike

The market's biggest worry is the chain reaction from worsening Middle East conditions: higher energy prices feeding into import prices, stoking inflation concerns, and ultimately delaying rate cuts or even triggering a hike. The 10-year U.S. Treasury yield climbed to 4.392%, nearing the psychologically important 4.5% level, and prediction-market odds of a rate hike topped 10% for the first time.

With global debt levels already high, a rate hike could strain companies, households, and governments alike. Still, the hosts cautiously noted that over the past year, President Trump's moves have ultimately been driven by bond yields, suggesting his hardline stance could again soften once yields approach that psychological ceiling.

Trump's Hormuz Ultimatum and the Strike on Qatar's LNG Facility

President Trump gave Iran a 48-hour ultimatum to open the Strait of Hormuz, warning of a forceful military response if it didn't comply. Iran immediately pushed back, threatening to fully close the strait and target energy, IT, and desalination infrastructure if the threat were carried out, while reports emerged of U.S. Marines moving toward the region from Japan.

Amid this, Iran struck a Qatari LNG facility, spreading the energy crisis from oil into natural gas. Qatar signaled a possible force majeure supply disruption; while the Korean government says domestic LNG supply is unaffected, Qatar accounts for about 20% of global LNG supply, so a prolonged standoff is likely to push prices higher.

The Lee Jae-myung Administration Accelerates Housing and Capital-Market Reform

President Lee Jae-myung instructed that officials who own multiple homes or expensive homes they don't live in be excluded from housing policy discussions and decisions. The hosts noted that of the 11 members of the housing policy team, two own multiple homes, three live in Gangnam apartments, and only two — including the President himself — own no home, framing the move as a preemptive step to avoid the kind of "do as I say, not as I do" controversies that dogged past administrations.

Starting today, the new RIA (returning overseas-stock account) offers a capital gains tax break for selling overseas stocks held before the end of last year and reinvesting in domestic stocks for at least a year. At this year's annual shareholder meetings, held under an amended Commercial Act that expanded ordinary shareholders' rights, the National Pension Service has been actively exercising its voting rights, prioritizing shareholder protection over management autonomy.

The government points to geopolitical risk, opaque corporate governance, unfair market practices such as stock manipulation, and political uncertainty as the roots of the 'Korea discount,' and is pushing reforms including the Commercial Act revision, treasury share cancellations, and separate taxation of dividend income. The hosts said keeping this reform momentum from stalling is the single biggest variable for whether the bullish Kospi scenario plays out.

The Hosts' Advice for Today

The hosts advised that on a volatile day like today, it's better to hold off on both buying and selling and instead stick to a plan. For portfolio weighting, they suggested roughly 40-50% in semiconductors and related stocks, 25-40% in index ETFs, and around 20% in cash, describing cash as an asset for seizing opportunities during volatile stretches.

They also noted that Korean equities have clearly outperformed U.S. equities this year, and that worrying about a market drop tied to a future change in administration is premature. For stocks already down 50%, they recommended cutting losses and rotating into market leaders, arguing that's a faster path back to break-even than waiting for a deeply battered stock to recover; for those who haven't started investing yet, they recommended beginning now with dollar-cost averaging and a cash buffer.