South Korean stocks have long been known for their low valuations, due to factors including corporate governance issues and the historically cyclical earnings of Samsung and SK Hynix, which together account for more than half of the market capitalization of the KOSPI index. Some market experts believe that AI is creating a new demand paradigm that transcends the typical boom-bust earnings pattern of memory, but Kospi's low price-to-earnings ratio suggests that many are still unconvinced. Charu Chanana, chief investment strategist at Saxo Bank, says South Korea needs evidence that the memory supercycle has momentum. Cheapness alone is not a reason to buy. Chanana worries that many mega-corporations will still be spending heavily this quarter, but will start talking about cost optimization, which is bad news for memory, as it means high prices are killing demand. However, Kospi's earnings per share expectations have risen by about 170% this year, and Jason Minsang Kam, head of active equity management at Seoul-based Kyobo Life Insurance Co., says the South Korean market has never experienced such an unprecedented, explosive surge in earnings momentum. However, it also expressed caution regarding the "extreme volatility" of the South Korean stock market and advised avoiding South Korean chipmakers for the time being, pointing out that their earnings are highly cyclical.
