Despite a slowdown in domestic demand, South Korea’s stock market is experiencing a remarkable surge, largely propelled by a semiconductor supercycle characterized by robust performance from industry giants SK Hynix and Samsung Electronics.
In a record-breaking year, SK Hynix reported sales exceeding 97 trillion won (approximately $67.6 billion) and an operating profit of 47 trillion won (around $32.8 billion), marking the highest figures in both its annual and fourth-quarter results. Notably, its fourth-quarter operating margin exceeded that of Taiwan’s leading foundry, highlighting substantial growth alongside strong profitability. Likewise, Samsung Electronics demonstrated impressive results, posting sales of 333 trillion won (approximately $232.2 billion) and an operating profit of 43 trillion won (around $30.0 billion), marking year-on-year increases of 11% and 33%, respectively. The semiconductor division was particularly strong, generating 44 trillion won (about $30.7 billion) in sales, contributing significantly to both companies’ overall performance.
This surge in earnings can be attributed to rising sales of high-value products, particularly high-bandwidth memory, alongside increasing memory prices. As a result, the benchmark KOSPI index surged past the 5,200 mark on January 29. Industry forecasts indicate that the semiconductor supercycle may persist throughout this year, with combined operating profits anticipated to exceed 200 trillion won (approximately $139.4 billion) and potentially approach 300 trillion won (about $209.2 billion) as memory shortages intensify and the dominance in the high-bandwidth memory market grows.
However, concerns loom regarding the broader economy’s heavy reliance on this single growth engine. While exports surpassed $700 billion last year, fourth-quarter growth declined, and annual growth remained modest. The semiconductor-centered IT manufacturing sector played a pivotal role in the country’s GDP expansion, suggesting that without the semiconductor industry, overall economic growth would have been significantly weaker.
While the semiconductor boom is slated to continue into this year, market analysts warn that stock markets generally factor in conditions about six months ahead. Consequently, the current chip-led rally may face constraints later this year. Furthermore, several risks await beyond that timeframe. The automotive sector grapples with uncertainties stemming from tariffs from the previous U.S. administration and rapid transitions toward autonomous and next-generation mobility solutions. Other sectors such as steel, petrochemicals, and batteries are contending with oversupply issues exacerbated by competition from China.
Efforts by the previous administration to cultivate pharmaceuticals and biotechnology as emerging key industries have shown limited progress. Moving forward, the development of new growth engines hinges on the government’s policy resolve. A recent report from the Korea Institute for Industrial Economics & Trade indicates that major powers like the U.S. and China are aggressively fostering strategic industries through a variety of policy instruments, while South Korea has adopted a more passive stance.
To revitalize industrial policy, a proactive restructuring of lagging sectors along with improved coordination across governmental ministries is necessary. Relying solely on private industry initiatives will not suffice. To achieve sustainable growth beyond the semiconductor sector, a comprehensive mobilization of policy tools will be essential to bolster domestic production and nurture new core industries.
