Tactical correction unlocks opportunities. Korea equities reached a new high on 3 Nov, delivering the strongest YTD performance of 76% among global markets. This outperformance was driven by diminishing political uncertainty, the new government’s structural reforms, and renewed foreign investors inflows. However, a sharp sell-off in November, triggered by the Fed’s hawkish stance and concerns on elevated tech valuations, led to significant foreign investors outflows. We view this pullback as a tactical correction rather than a sign of fundamental deterioration. The pullback should help reset market expectations, eliminating frothy positioning and creating a re-entry for investors who are positioned for Korea’s growth story.

Robust earnings and attractive valuations to underpin growth. The projected 2026 earnings growth for Korea equities has seen a remarkable upward revision from 17% in August to 40%, significantly outpacing regional peers. While the technology sector predominantly drives this revision on the back of global AI cycle, other sectors are also showing improved earnings. This is largely due to a reduction in US tariffs (from 25% to 15%) and an anticipated rebound in GDP growth in 2026.

Korea's GDP growth is projected to return to its normal trajectory of approximately 2% in 2026, up from an estimated low of 1% in 2025, driven by stronger domestic demand and a recovery in exports. Private consumption has begun its recovery in 2H25, supported by more accommodative fiscal and monetary policies and easing political uncertainties. Despite YTD performance, the market remains attractive at a 2026 P/E ratio of 9.8x, the lowest valuation among Asia ex-Japan (AxJ) markets.

Figure 1: Superior earnings growth with undervalued valuations

Source: LSEG, DBS
Data as at 10 Dec, based on MSCI I/B/E/S estimates

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