Korea Strategy "Peak fear vs broader growth; Positioning for the next leg" Son

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Korea Strategy "Peak fear vs broader growth; Positioning for the next leg" Son

KOSPI up/downside 10,500/5,500 - AI, concentration, rates, cost and labor

We view change in AI bull thesis and concentration risk, in addition to market already

pricing in peak memory cycle could cap KOSPI upside despite record EPS growth. Other

risks include rate hikes and energy shock driven EPS downgrades from Q226. We see

higher profit-sharing with labor across industries to be a possible derating factor as it

would reduce profits, while wealth benefits may be limited due to wage push inflation

and leakages (debt servicing). Net outflow from and rotation within EM could be

negative given Korea’s outperformance YTD. Our upside 10,500 (10x) is based on

prolonged memory upcycle and better shareholder returns, while downside 5,500 (8x

NTM PE) reflects risks from shorter memory cycle and stagflationary pressures from a

prolonged US–Iran conflict.

Sector and stock

We remain bullish on Memory (SEC [raise to Key Call Buy], SKH [remove from Key Call

Buy] and Hansol Chem; Eugene Tech for DRAM WFE exposure) and AI enablers

(Hyosung Heavy, Doosan Enerbility , Hyundai E&C, add SDI and POSCO Holdings). We

see Defense (KAI) as a long-term structural theme while Shipyards (HHI, KSOE) benefits

from being AI/DC, Defense and traditional shipbuilding beneficiaries. We are positive on

wealth effect (HDS; add D’Alba & APR, remove Amore) and oversold stocks (Coupang).

We remain negative on EV (PFM, Ecopro BM, L&F) and tech (Hanmi Semi). But we

remove Emart from Least preferred after our upgrade to Neutral.

Figure 1: Our most- and least-preferred stocks in Korea

d le ef d stocks in ea

Our most- an ast-pr erre Kor

Source: Source: Refinitiv, UBS estimates. Note: Priced as of 20 May 2026.