🚨 The Truth Behind KOSPI's Record High Rally
Today Korean Economic News for Beginners | 2025.09.18
0️⃣ 18% of Large-Cap Stocks Led the Rise While 30% Actually Fell
📌 "Semiconductor and Shipbuilding Giants Drive Index Up... Small-Cap Stocks Struggle" Polarization Deepens
💬 Since President Lee Jae-myung took office, KOSPI has risen 24.5%, marking the highest growth rate among all previous governments. However, there's an uncomfortable truth behind this impressive performance. Only 18% of all KOSPI-listed companies drove the index higher, while over 30% actually declined. Large semiconductor companies like Samsung Electronics and SK Hynix, along with shipbuilding stocks like HD Hyundai Heavy Industries and Hanwha Ocean, lifted the index, while most small and mid-cap stocks remained weak. The KOSDAQ index only rose 13.5%, showing half the growth rate of KOSPI. Experts say "it's difficult to interpret this index rise solely as government achievement" and analyze it as "actually a concentrated rise centered on specific sectors and large companies."
1️⃣ Easy Understanding
You've probably seen lots of news about KOSPI index rising sharply recently. But when you look inside, not all company stocks went up - only a few big companies rose significantly. It's like when a class's average test score goes up, but actually only a few top students got much higher scores and pulled up the average.
Let me first explain how the KOSPI index is calculated. KOSPI is an index made by combining the 'market capitalization' of all companies listed on the stock exchange. Market capitalization is a company's stock price multiplied by the number of shares issued - simply put, it shows the total value of that company.
The important point here is that large companies like Samsung Electronics or SK Hynix have a very big portion in the overall index. For example, if Samsung Electronics' stock price goes up 10%, it can have more impact on the index than 10 small companies' stock prices going up 10%.
Looking at the recent situation, semiconductor companies grew significantly with the AI boom. As demand for high-performance semiconductors exploded worldwide for AI technology development, Samsung Electronics and SK Hynix stock prices rose sharply. Also, defense company stocks rose due to the Russia-Ukraine war and Middle East conflicts, and shipbuilding companies showed good performance due to global shipping market recovery.
However, while these large-cap stocks were rising, small and mid-cap companies had no particular positive news. The domestic economy was still weak, and high interest rates made it difficult to raise funds. That's why over 30% of all stocks actually declined.
The reason KOSDAQ index had a lower growth rate than KOSPI is also here. KOSDAQ has many small companies and venture companies, and these are mostly more sensitive to domestic economic conditions and face difficulties in raising funds, showing relatively poor performance.
In the end, KOSPI's rise can be seen as a case that fell into the 'trap of averages.' Looking only at the index, the Korean stock market seems generally good, but actually polarization occurred where only a few large-cap stocks did well while the rest didn't.
2️⃣ Economic Terms
📕 Market Capitalization
Market capitalization is the total market value of a company's issued shares, calculated by multiplying stock price and number of shares issued.
- It's an indicator showing a company's total value and tells how valuable investors think that company is.
- The larger the market cap, the bigger impact on the KOSPI index.
- Samsung Electronics' market cap is so large it takes up over 20% of the entire KOSPI.
📕 KOSPI Index
KOSPI (Korea Composite Stock Price Index) is Korea's main stock market index.
- Using January 4, 1980 as the base date (100), it shows market cap changes of all KOSPI market listed companies.
- It's calculated using market cap weighted average method, so larger companies have bigger impact on the index.
- It's a representative economic indicator showing the overall trend of Korean economy and stock market.
📕 KOSDAQ Index
KOSDAQ is an index of a market where small companies and venture companies are mainly listed.
- It's a market modeled after America's NASDAQ, with many innovative companies listed.
- It has higher volatility and growth potential than KOSPI, but also higher risk.
- It reacts more sensitively to domestic economic conditions and small company funding situations.
📕 Polarization
Polarization means a phenomenon where specific groups or indicators divide into extreme opposites.
- In stock markets, it means performance gaps between large-cap and small-cap stocks, or between specific sectors and others become very wide.
- Even when indexes rise, individual investors' returns can vary greatly.
- When judging overall market health, we need to consider the degree of polarization together.
3️⃣ Principles and Economic Outlook
✅ Analysis of Structural Causes Behind Index Rise
Let's examine the background of why KOSPI index rise concentrated on specific sectors and large-cap stocks.
First, the explosive growth in global AI semiconductor demand was the key driver. The spread of generative AI like ChatGPT led to explosive demand for high-performance semiconductors. Especially in the high bandwidth memory (HBM) market needed for AI learning and inference, SK Hynix secured a dominant position and saw its stock price rise significantly. Samsung Electronics also benefited by increasing AI chip orders in its foundry business. These two companies alone account for over 30% of KOSPI's market cap, so the semiconductor sector boom lifted the entire index.
Second, geopolitical tensions and defense industry benefits overlapped. As the Russia-Ukraine war became prolonged and Middle East regional instability continued, global interest in the defense industry increased. Korean defense companies also succeeded in large-scale orders like Poland export contracts, causing stock prices to surge. Especially Hanwha Systems and Hanwha Aerospace recorded hundreds of percent increases. Though their weight is small, the rise was so large it contributed significantly to index growth.
Third, the shipbuilding industry's strong orders also played a part. With global shipping industry recovery and increased demand for eco-friendly ships, the shipbuilding industry recorded record-high orders. Major shipbuilders like HD Hyundai Heavy Industries, Samsung Heavy Industries, and Hanwha Ocean saw their order backlogs exceed 4 years, and stock prices rose together. Especially with greatly increased demand for LNG carriers and container ships, the shipbuilding industry's improved mid-to-long-term outlook was reflected in stock prices.
In the end, global industrial trend changes and geopolitical factors worked intensively in favor of specific sectors.
✅ Small-Cap Stock Weakness and Deepening Polarization
Let's analyze why small and mid-cap stocks underperformed unlike large-cap stocks and their impact.
First, domestic economic recession dealt a direct blow to small-cap stocks. High interest rates and real estate market decline caused consumers to tighten their wallets, severely impacting domestic companies. Especially small companies related to daily consumption like retail, dining, and household goods saw significantly worsened performance. On the other hand, large-cap stocks were mostly export companies or companies competing in global markets, so they were relatively less affected. This structural difference led to gaps in stock performance.
Second, funding environments worked unfavorably for small companies. As the Bank of Korea maintained high interest rate policies, small companies' loan rates rose significantly. Also, banks made loan screening stricter, making it difficult for small companies to raise operating funds. Meanwhile, large companies could use various methods like corporate bond issuance or overseas funding, making funding relatively easier. This difference in funding access also affected company performance and stock prices.
Third, institutional investors' investment patterns also changed to favor large-cap stocks. As economic uncertainty grew, institutional investors like pension funds and insurance companies showed preferences for safe assets. They came to prefer large-cap stocks with abundant liquidity and solid financial structures, while reducing investments in relatively risky small-cap stocks. Foreign investors showed similar patterns, significantly reducing fund inflows to small-cap stocks.
These structural factors worked in combination to deepen polarization within the stock market.
✅ Future Market Outlook and Sustainability
Let's examine whether the current index rise trend can continue and the possibility of resolving polarization.
First, whether the semiconductor sector's continued growth is a key variable. AI semiconductor demand is expected to continue growing for a while, but there's also possibility that this is already largely reflected in stock prices. Especially for SK Hynix, some analyze that the premium based on HBM monopoly position is already fully reflected. Also, with China's semiconductor rise and US semiconductor subsidies intensifying competition, it may be difficult to maintain current high growth rates going forward.
Second, the timing of interest rate cuts and domestic economic recovery are keys to small-cap stock rebound. When the US Fed and Bank of Korea's interest rate cuts begin in earnest, small companies' funding burdens will decrease and domestic economy is expected to gradually recover. Especially if the real estate market stabilizes and consumer sentiment improves, previously weak domestic-related small-cap stocks could also get opportunities. However, since such changes take time, the current polarization structure is likely to continue short-term.
Third, government policy effectiveness and structural reform results will have important influence. If corporate governance improvements through commercial law amendments or dividend expansion policies actually lead to corporate value improvements, it could become new opportunities for small-cap value stocks that have been undervalued. Also, if venture investment activation or small business support policies show effects, the KOSDAQ market could also regain vitality. However, such policy effects need considerable time to appear, and whether they'll lead to actual results is uncertain.
In the end, for current index rises to lead to sustainable growth, balanced recovery across the entire market is needed.
4️⃣ In Conclusion
KOSPI's record high rally looks impressive on the surface, but was actually a concentrated rise led by a few large-cap stocks. Only 18% of all stocks led the index rise while over 30% declined, showing a representative case of serious stock market polarization.
The core drivers of this rise were explosive semiconductor demand growth due to the global AI boom and defense/shipbuilding industry benefits from geopolitical tensions. Large semiconductor companies like Samsung Electronics and SK Hynix enjoyed unprecedented prosperity and lifted the entire KOSPI index. However, such performance doesn't mean the overall health of the Korean economy.
Actually, the domestic economy remains weak, and small companies suffer from high interest rates and funding difficulties. KOSDAQ index rising only half the level of KOSPI also reflects such structural problems. The weakness of the KOSDAQ market, mainly composed of small companies and venture companies, could signal declining economic dynamism and innovation capacity.
From investors' perspective, they shouldn't be deceived by index rises but should carefully examine individual company and sector fundamentals. It's uncertain how long large-cap centered rises will continue, and valuation burdens are also growing. Rather, finding opportunities among small-cap value stocks that have been neglected might be a wiser strategy.
Policy authorities should also not just tout index rises as achievements, but make efforts for balanced development across the entire market. It's important to resolve polarization through appropriate interest rate policy adjustments, expanded small business support, and domestic economic activation.
In the end, true stock market development means creating an ecosystem where various companies can grow together, not just a party for a few large-cap stocks. We hope the current impressive index rise becomes a starting point for such healthy growth.
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