A Resilient Surge in South Korea’s Stock Market

Despite rather lethargic domestic demand, South Korea’s stock market is experiencing quite a surge. This rise is chiefly propelled by a semiconductor supercycle, primarily led by the notable SK Hynix and the renowned Samsung Electronics.

Remarkable Achievements of SK Hynix and Samsung

Last year, SK Hynix achieved remarkable sales, surpassing 97 trillion won (approximately $67.6 billion). Their operating profit stood at an impressive 47 trillion won (around $32.8 billion), reaching new heights both annually and in the fourth quarter. Samsung Electronics, not to be outdone, reported sales of 333 trillion won (about $232.2 billion) with an operating profit of 43 trillion won (approximately $30.0 billion). This demonstrates an 11% increase in sales and a staggering 33% rise in operating profit year-over-year.

Driving Factors and Market Predictions

Indeed, these earnings surprises were spurred by increased sales of high-value products such as high-bandwidth memory and a rise in memory prices. Consequently, on January 29, the benchmark KOSPI index surpassed 5,200. Industry forecasts hint that this semiconductor supercycle might persist throughout the year. Some projections even suggest operating profits could approach 300 trillion won (around $209.2 billion) as memory shortages deepen.

The Single Engine Dilemma

Nevertheless, it’s quite troubling how heavily the broader economy relies on this solitary engine. While exports exceeded $700 billion last year, fourth-quarter growth disappointingly turned negative. The semiconductor-focused IT manufacturing sector largely contributed to the country’s modest GDP growth. Without semiconductors, overall growth might have been far weaker.

Challenges and Future Prospects

However, the rally driven by chips might encounter limits later this year, as stock markets typically anticipate conditions six months in advance. Beyond that, challenges abound. The automotive sector faces uncertainties from tariff-related matters and swift transitions towards autonomous vehicles. Industries like steel, petrochemicals, and batteries struggle with oversupply issues, primarily spurred by competition led by China.

The Quest for New Growth Engines

Previous administrations vowed to nurture pharmaceuticals and biotechnology as next-generation core industries. Yet, tangible progress remains wanting. Building new growth engines hinges on resolute government policy. A recent report by the Korea Institute for Industrial Economics & Trade highlighted the aggressive promotion of strategic industries by global powers like the United States and China. Meanwhile, South Korea appears comparatively passive.

The Path Ahead for Sustainable Growth

To truly revitalise industrial policy, we require active restructuring of underperforming sectors and strengthened coordination across various ministries. Sole reliance on private initiative won’t suffice. For sustainable growth beyond the semiconductor sphere, the government must deploy a wider array of policy tools to fortify domestic production and cultivate new core industries.

Reported by Asia Today; translated by UPI
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Original Korean report: Asia Today