This article first appeared on GuruFocus.
South Korea’s equity market delivered a standout year in 2025, marking its strongest advance in a quarter century as gains broadened across semiconductors, defense, nuclear power and K-beauty. The Kospi Index climbed 76% this year, compared with a 17% rise in the S&P 500 and a 25% gain in the MSCI Asia Pacific Index, with momentum supported by chip heavyweights Samsung Electronics and SK Hynix alongside defense and nuclear names. Brokers including Citigroup (NYSE:C), JPMorgan (NYSE:JPM) and Nomura have pointed to the potential for further upside next year, suggesting the rally could extend if earnings growth remains supportive.
Much of the upside has been driven by AI-related proxy trades rather than conventional chipmakers. Power transformer maker Hyosung Heavy Industries and nuclear power provider Doosan Enerbility each rose more than 320% this year, as investors focused on the lack of quick carbon-free alternatives to meet rising data-center power demand. Morgan Stanley (NYSE:MS) analysts have said investor interest in power grid and infrastructure stocks could carry into 2026, citing grid modernization, AI data centers and decarbonization as converging forces. In memory chips, Samsung advanced 125% to an all-time high while SK Hynix gained about 270%, with related firms such as SK Square and Korea Circuit also climbing more than 330% amid expectations that memory shortages are taking hold.
Defense contractors and K-beauty leaders added further support to the rally, even as some sectors lagged. Hanwha Aerospace and Hanwha Ocean posted gains near or above 200% as higher defense spending followed President Donald Trump’s reshaping of traditional security alliances, and Must Asset Management has suggested additional European partnerships could emerge over time. In cosmetics, APR surged 362% and overtook established peers in market value, while Amorepacific rose 14% and LG H&H extended its multi-year decline, with investors noting that high expectations leave APR vulnerable to sharp swings if setbacks occur. By contrast, game developers such as Krafton and Com2uS, along with parts of the electric-vehicle supply chain including Enchem and SK Innovation, ended the year under pressure amid softer demand and intensifying competition.