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South Korean equities have surged—the MSCI Korea Index is up 142% in USD terms over the twelve months to January 31— making it the world’s best-performing equity market. With Samsung Electronics and SK Hynix representing about 54% of the MSCI Korea Index, AI-driven demand for memory has dominated returns. After gains like these, the natural question is: what’s left?
By Ryan Myers, Portfolio Manager
South Korea is currently the largest country overweight in the Causeway Emerging Markets and International Small Cap strategies.
Despite the rally, we believe valuations remain attractive. As of January 31, the MSCI Korea Index trades at 11x forward earnings versus 14x for the MSCI Emerging Markets Index. South Korea holdings in Causeway’s Emerging Markets strategy are cheaper still, at approximately 7x.
More importantly, drivers of a market re-rating appear to be taking shape: governance reform, capital return, currency support, and industrial depth beyond semiconductors.
Key insights
- Korea’s rally has been memory-led, but we believe it is not memory-bound.
- Valuations remain attractive despite strong performance.
- Structural reforms, broadening industry leadership and a strengthening macro backdrop could help extend the re-rating beyond semiconductors.
Value-Up Is Becoming Policy: Corporate governance reform is no longer theoretical. Amendments to the Korea Commercial Act require boards to better protect minority shareholders and expand shareholder participation. Dividend tax reform now incentivizes higher and rising payout ratios. A proposed mandate to cancel treasury shares would make buybacks genuinely accretive. At the same time, temporary tax incentives aimed at repatriating capital into domestic equities could create incremental demand. Collectively, these steps should narrow—and possibly close—South Korea’s longstanding valuation discount to the MSCI Emerging Market Index.
Improving Macro and Currency Backdrop: Favorable leading economic indicators, a current account surplus, and a positively sloped yield curve support growth, keeping our macroeconomic models positive on South Korea, while our currency models point to potential won appreciation—an underappreciated tailwind for USD-based investors.
Broadening Leadership: Defense and shipbuilding—industries largely forgotten in the memory rally—are currently benefitting from sustained increases in global military spending and demand for high-end and eco-friendly vessels. These are multi-year trends, not short-term trades.
An extreme memory chip shortage and upcycle catalyzed South Korea’s recent outperformance. Reform, capital discipline, currency strength, and broader industrial leadership should sustain it. Together they form the foundation for competitive equity market returns.
This market commentary expresses Causeway’s views as of February 2026 and should not be relied on as research or investment advice regarding any stock. These views and any portfolio holdings and characteristics are subject to change. There is no guarantee that any forecasts made will come to pass. Forecasts are subject to numerous assumptions, risks, and uncertainties, which change over time, and Causeway undertakes no duty to update any such forecasts. Information and data presented has been developed internally and/or obtained from sources believed to be reliable; however, Causeway does not guarantee the accuracy, adequacy, or completeness of such information. For full performance information regarding Causeway’s strategies, please see www.causewaycap.com.
In addition to the normal risks associated with equity investing, international investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors, as well as increased volatility and lower trading volume. Current and future holdings are subject to risk. For further information on the risks regarding investing in Causeway’s strategies, including unique risks relevant to emerging markets including China and investment structures of certain Chinese companies, please go to https://www.causewaycap.com/wp-content/uploads/Risk-Disclosures.pdf
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index, designed to measure equity market performance of emerging markets, consisting of 24 emerging country indices. The MSCI Korea Index is designed to measure the performance of the large and mid cap segments of the South Korean market.
MSCI has not approved, reviewed, or produced this report, makes no express or implied warranties or representations and is not liable whatsoever for any data in the report. You may not redistribute the MSCI data or use it as a basis for other indices or investment products.
