4/17/2026
South Korea Draws Back Investors Even as Iran War Exposes Cracks
Reuters (04/17/26) Hunter, Gregor Stuart
South Korea's capital markets are luring back foreign buyers after a brutal March, as hopes of stability in the Middle East, a red-hot AI memory trade and Seoul's corporate governance reforms lift stocks and bonds alike. The benchmark KOSPI recouped nearly all of last month's 19% tumble, regaining the momentum that made it the best performing major stock index last year. However, the rout brought into focus some of the risks of the East Asian market, with its heavy focus on a handful of AI-linked companies and volatility far exceeding most other equity bourses. The currency also remains stuck near 17-year lows, raising costs for the imported energy on which South Korea depends, while also limiting the scope for stimulus as policies aimed at supporting growth also risk exacerbating inflation. Although $4.2 billion of foreign capital has poured back into South Korean stocks this month, a record $23.8 billion fled in March, LSEG data shows. For Isaac Thong, senior investment director for Asian equities at Aberdeen Investments, the steep selloff offered an attractive re-entry point to the Seoul market. Thong sold holdings in Taiwanese semiconductor manufacturers to buy cheaper stocks of South Korean memory chipmakers such as Samsung Electronics (005930.KS), joining investors angling for a slice of the profits from high bandwidth memory used in data centers. "We're cautiously optimistic, but we think it's a megatrend," he said. "Barring a recessionary scenario, we think this trend is going to continue." Despite its distance from the Middle East, South Korea has been hit hard by market volatility since the war started, with its open and export-centered economy highly exposed to the energy shock, particularly amid persistent weakness in the currency. The volatility of South Korea's stock market far outstripped other equivalent gauges for Asian and U.S. stocks since the start of the Iran war. The volatility of South Korea's stock market far outstripped other equivalent gauges for Asian and U.S. stocks since the start of the Iran war. The KOSPI has seen plunges of as much as 12% in a single day followed by gains of 9%. But even after a turbulent March, the index is up 44.5% this year, building on a 75% surge in 2025. The government is also trying to draw foreign capital with corporate governance reforms, taking aim at the so-called 'Korea Discount,' a persistent valuation gap rooted in weak corporate governance among family-owned conglomerates known as chaebols. Those initiatives have attracted activist funds, seeking the kind of returns seen last decade in Japan under former premier Shinzo Abe's "Abenomics" policies.
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