Ross McGarry, senior investment analyst at AVI Global Trust, argues that South Korea's equity market offers opportunities beyond the current memory-chip cycle. While Samsung Electronics and SK Hynix have driven the KOSPI's 118% year-to-date return, the equal-weighted index has gained only 49%, highlighting a narrow rally.
McGarry notes that the KOSPI's price-to-book ratio has re-rated from 0.9x in December 2024 to 2.5x, in line with the emerging market average. However, two-thirds of KOSPI companies still trade below book value, and 41% below 0.5x, a higher proportion than in Japan, the US, or Europe.
Screening over 2,300 non-financial listed companies with liquidity and capitalisation filters yields an investable universe of more than 600 names, trading at an average 0.65 times book value. This suggests a broad set of undervalued stocks for bottom-up investors.
The memory super-cycle, driven by AI demand for High Bandwidth Memory, has led to massive earnings upgrades. Samsung's 2026 EBIT consensus has been revised from 137% year-on-year growth to around 700%, and Goldman Sachs sees index-level earnings growth revised from 48% to 277%.
Despite the concentration in Samsung and SK Hynix, McGarry points out that the rest of the market has also seen significant profit upgrades, indicating the earnings cycle is broader than often perceived. He cautions that the memory cycle will eventually turn, but the current environment offers value beyond the headline names.
Source: portfolio-adviser.com
