(EDITORIAL from Korea Herald on April 29)

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(EDITORIAL from Korea Herald on April 29)

Rally without breadth

: Korea's equity boom accelerates on chips, but debt and risks quietly build

A market that doubles in less than a year invites applause. It also invites questions.

South Korea's KOSPI closed up 2.15 percent at 6,615.03 on Monday — breaking the 6,600 level, a new record — and the combined value of companies listed in the local market crossed 6,000 trillion won ($4.08 trillion) for the first time.

In a show of continued strength, the KOSPI ended up 0.39 percent at 6,641.02 on Tuesday, an all-time high, briefly topping 6,700.

There is no question about the dizzy pace of growth as the market has expanded roughly 2.7 times from a year earlier, doubling in about nine months.

The immediate driver is clear. A powerful semiconductor upcycle, tied to global demand for artificial intelligence infrastructure, has lifted the market's largest firms. Samsung Electronics and SK hynix reported first-quarter operating profits of about 57 trillion won and 37 trillion won.

Together, the two chip giants account for more than 40 percent of the KOSPI's value, an unusually high concentration for a major market. Gains in power equipment, shipbuilding and other industrial sectors have followed, but largely in the slipstream of chips.

This concentration has consequences. It ties the trajectory of the broader market to a single global cycle, one that is inherently volatile. Optimism surrounding US technology firms has reinforced the rally, as stronger earnings expectations there imply sustained demand for high-bandwidth memory produced in Korea.

Yet the same linkage works in reverse. Any cooling in AI investment, or shift in technology spending priorities, would quickly reverberate through Korean equities.

Risks closer to home are no less tangible. A planned strike by Samsung Electronics' labor union, scheduled to begin in May, threatens production disruptions with potentially high economic costs. Early indications from recent labor actions suggest output losses can materialize quickly.

At the same time, geopolitical tensions in the Middle East remain unresolved. Uncertainty surrounding energy routes such as the Strait of Hormuz leaves supply chains exposed and commodity prices volatile. Markets have so far taken these risks in stride. That calm may prove conditional.

More concerning is investor behavior. Credit-financed stock purchases have surged, with margin balances approaching 35 trillion won, nearly double a year earlier. This reflects a willingness to amplify gains through leverage at a moment when valuations are already stretched.

By one widely cited measure, the ratio of total market capitalization to gross domestic product has exceeded 200 percent, placing the market well above the underlying economy.

The contrast with the real economy is equally worrisome. Korea's potential growth rate continues to drift downward, while the first quarter's 1.7 percent growth relied heavily on semiconductor exports.

Meanwhile, signs of strain are emerging at the bottom of the economy. Court auction filings have reached their highest level in over a decade, reflecting stress among small businesses and households. Rising delinquency rates point in the same direction.

An economy reliant on a single sector for both growth and market performance could deepen inequality, as gains accrue to capital and high-skilled labor while others face stagnant conditions.

Policy responses must therefore look beyond the headline figure of 6,000 trillion won. Financial regulators should monitor leverage more closely and ensure that excess does not compromise stability. Cleaning up underperforming listed firms would also improve market quality.

More fundamentally, the government needs to broaden the industrial base. Sectors such as defense, biotechnology and robotics offer avenues for diversification, but only if supported by consistent policy.

The new milestone, for all its symbolic weight, reflects strength in one sector rather than the economy as a whole. A market can outpace its foundations, but not indefinitely. The question is whether this moment marks the start of broader expansion or the peak of a concentrated cycle.

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