South Korea’s chip surge hides the market’s vulnerabilities

SOUTH Korea’s world-beating equity rally this year would appear to be the perfect advertisement for President Lee Jae-myung’s efforts to increase household investment in stocks – a generally healthy goal that can foster wealth creation and deepen the pool of capital available to businesses.

But a truly healthy investing culture starts with diversification, something that is not easy in the South Korean stock market today. In fact, the concentrated nature of the current rally shows why the market is still ill-suited to helping residents invest for the future.

There is no doubting the extraordinary nature of South Korea’s performance. The Kospi has gained 78 per cent this year, compared to a 7 per cent gain for the MSCI World Index of global developed market stocks, and a 23 per cent increase in the MSCI Emerging Markets Index.