To The Moon

On February 28, a joint US–Israel military strike against Iran triggered severe turbulence across global capital markets. Among all markets, the reaction in South Korea was the most dramatic.

Because of the Independence Movement Day holiday, the Korean stock market was closed on March 2. When trading resumed on March 3, the KOSPI index plunged rapidly, triggering a circuit breaker during the session and ultimately closing down 7.24%.

Panic quickly spread. On March 4, the KOSPI plunged again, crashing 12.06% in a single day—marking the largest one-day decline in its history and shocking global investors.

Before investors could recover from the selloff, the KOSPI suddenly reversed course. On March 5, the index surged more than 12% intraday and ultimately closed up 9.63%, its biggest one-day gain since the 2008 global financial crisis.

The violent swings in the Korean stock market also caused major volatility in Korea-focused ETFs listed in the United States. The largest Korea ETF, $iShares MSCI South Korea ETF(EWY)$ , plunged 10.3% on March 3 but rebounded 5.6% on March 9. The 3x leveraged Korea ETF $Direxion Daily MSCI South Korea Bull 3x Shares(KORU)$ dropped 31% on March 3 and at one point lost roughly half its value from its historical peak. $Franklin FTSE South Korea ETF(FLKR)$ and $Matthews Korea Active ETF(MKOR)$ also experienced large fluctuations.

Among Korea ETFs, $PLUS Korea Defense Industry Index ETF(KDEF)$ was an exception. Its price has remained roughly unchanged compared with levels before the outbreak of the US–Iran conflict. Because the ETF focuses on the defense sector, it has not only acted as a safe haven but may also benefit from rising military demand during wartime.

After such extreme volatility, the key question becomes: will the Korean stock market rise or fall from here? Should investors buy the dip in Korea ETFs, or is it time to exit?

First, it is important to note that the sharp selloff came after an extraordinary rally. Before the outbreak of the US–Iran conflict, the KOSPI index had already gained 48% year-to-date, making it the best-performing major stock index in the world.

Even more striking, the KOSPI surged 75.6% in the previous year, highlighting just how extended valuations had become before the sudden geopolitical shock.

The massive prior gains significantly amplified the impact of the US–Iran war “black swan,” resulting in an unprecedented selloff.

Second, although the initial trigger for the crash was the US–Iran conflict, nearly 50% of the Korean market’s weight is concentrated in Samsung Electronics and SK Hynix. As global leaders in AI memory chips, both companies have benefited greatly from the historic memory cycle. Their fundamentals remain strong, and the US–Iran conflict does not alter the long-term trajectory of AI demand.

As a result, after the sharp selloff, the Korean market rebounded quickly, producing a rare one-day surge.

Looking ahead, the key question is whether this extreme volatility is merely a temporary disruption within a bull market, or the spark that could burst a growing bubble in Korean equities.

From the perspective of heavyweight stocks, Samsung Electronics and SK Hynix together account for about 35% of the total market capitalization of the Korean stock market. Looking at the holdings of the Korea ETF EWY, the two companies make up roughly 43% of the fund’s net asset value:

Therefore, asking whether the Korean stock market still has a future is essentially the same as asking whether the share prices of Samsung Electronics and SK Hynix can continue to rise.

From a valuation perspective, both Samsung Electronics and SK Hynix are currently trading at historically elevated price-to-book levels. Samsung Electronics reached a peak valuation of 1.9 times book value during the 2021 bull market, compared with about 2.6 times today. SK Hynix traded at around 1.9 times book value at the peak of the 2021 cycle, but its current valuation has surged to roughly 5.5 times:

Another memory chip giant, $Micron Technology(MU)$ , is currently trading at a price-to-book ratio of about 8 times, approaching the valuation level of $Taiwan Semiconductor Manufacturing(TSM)$ at around 9 times:

Generally speaking, memory chips are far more cyclical than TSMC’s business. Historically, memory giants have therefore traded at valuations significantly below TSMC. Today, however, Micron is receiving a valuation approaching that of TSMC, which by most measures appears relatively high.

From an earnings perspective, both Samsung Electronics and SK Hynix have delivered extremely strong performance. Analysts expect Samsung Electronics’ revenue to grow by about 41.6% in the first quarter this year, while SK Hynix is projected to post revenue growth of around 148.5%:

Among them, Samsung Electronics’ revenue growth may appear somewhat modest. However, from the perspective of operating profit, the picture is quite different. In the fourth quarter of last year, despite revenue growing only 23.8% year over year, operating profit surged by 209% compared with the same period a year earlier:

Analysts expect Samsung Electronics’ operating profit in the first quarter of this year to surge by 422.6% year over year, while SK Hynix’s operating profit is projected to jump by about 290%.

Explosive earnings have been accompanied by unprecedented valuations, and investors’ positioning is therefore understandable.

However, it is important to remember that the semiconductor industry is inherently cyclical. Memory chip prices in particular are highly volatile. Once the current AI infrastructure boom fades and memory prices begin to decline, the high earnings base could turn into a major headwind, potentially dealing a heavy blow to both Samsung Electronics and SK Hynix.

This raises an important question: how far has the current AI cycle progressed, and can memory chip prices continue rising?

From the perspective of technology companies’ capital expenditure, analysts estimate that spending will reach about $651 billion this year, representing a 42% year-over-year increase. Capital expenditure is projected to rise further to $732 billion by 2027. Although spending will continue to grow, the growth rate is expected to slow to around 12%, and then decelerate further to about 6% by 2028:

From the perspective of memory chip prices, taking DDR5-4800/5600 16Gb 2Gx8 as an example, the price has declined from $35.35 per unit at the end of January to $33.2 per unit since then:

However, high-end memory used in AI servers, such as HBM3E (high-bandwidth memory), is typically sold under contract pricing, with chip designers like Nvidia negotiating prices directly with suppliers such as SK Hynix.

For example, on February 19, South Korea’s Chosun Ilbo cited unnamed industry sources reporting that Samsung Electronics was negotiating a unit price of around $700 for its next-generation HBM4 chips, roughly 20% to 30% higher than the price of HBM3E.

Earlier, in August 2025, SK Hynix reportedly set the price of HBM4 supplied to Nvidia at around $550 per unit.

Another example emerged on February 25. According to Korean media reports, Samsung Electronics’ semiconductor division (DS) began negotiations with Apple over LPDDR5X memory for the iPhone 17 series with an initial offer of a 100% price increase. The company originally intended to leave room to settle at around a 60% increase, but Apple accepted the opening offer immediately, effectively locking the price at double the previous level.

At present, analysts expect the average price of high-bandwidth memory to reach about $14.3 per gigabyte this year, rising to around $16.2 by 2027 and approximately $16.6 by 2028:

Based on these trends, the memory chip price upcycle is likely to continue at least until 2027.

However, from a stock price perspective, the explosive rally in memory chip companies began around September 2025, which coincided with the sharp price surge of DDR5-4800/5600 16Gb 2Gx8.

Now that the price of DDR5-4800/5600 16Gb 2Gx8 has pulled back slightly from its peak, and considering that investors’ optimistic expectations have already been largely reflected in share prices, a period of high-level price consolidation in the memory market could weigh on short-term stock performance.

At present, analysts expect that after the first quarter of this year, the quarter-over-quarter increase in DRAM prices will gradually decline from the current peak of around 40%. By early 2027, the sequential growth rate may approach zero:

Quarterly DRAM Price Trend and Forecast

From a capacity expansion perspective, new production is expected to come online in the first half of 2027. Samsung’s P5 fab, SK Hynix’s Yongin fab, and Micron’s expansion projects are all scheduled to begin mass production, which could help ease the current supply tightness:

Accelerating Expansion of New Production Capacity

Taking all factors together, memory chip prices are unlikely to face major pressure this year. However, given the already elevated valuations, the upside for related stocks may be limited. If a significant correction occurs, it could present an opportunity for investors to position themselves.

Over time, downward pressure on memory prices is likely to gradually increase, with the key turning point expected around the first half of 2027.

Therefore, investors may want to appreciate the unprecedented bull run in Samsung Electronics and SK Hynix while it lasts.

Although the boom in memory chips may not be permanent, $PLUS Korea Defense Industry Index ETF(KDEF)$ could emerge as one of the more resilient Korea-focused ETFs.

From a holdings perspective, KDEF does not hold Samsung Electronics or SK Hynix. Instead, its portfolio is primarily concentrated in companies such as Hanwha Aerospace and Hyundai Rotem, with the remaining holdings also focused largely on heavy industry：

Hanwha Aerospace is the largest defense company in South Korea, with core businesses including land weapon systems, aircraft engines, military electronics, and shipbuilding.

From a stock price perspective, Hanwha Aerospace has experienced significant volatility. The share price declined steadily from 2010 to 2020, but after the outbreak of the Russia–Ukraine war in 2022, it entered a powerful bull market:

From an earnings perspective, Hanwha Aerospace resumed growth starting in 2016 and began accelerating after 2022. In 2025, following the consolidation of Hanwha Ocean (Hanwha Ocean, primarily engaged in shipbuilding), revenue surged by 136.7%. Net profit has grown even more significantly since the Russia–Ukraine war in 2022, rising from 252.6 billion KRW to 2,298.9 billion KRW in 2024:

The main driver behind Hanwha Aerospace’s earnings growth has been the surge in demand following the Russia–Ukraine war. In the land weapons systems segment, overseas revenue jumped 169% in 2022, increased another 234% in 2023, and grew by 158% in 2024. In the aerospace segment, overseas revenue rose 21% in 2022 and further accelerated to 42% in 2023:

In addition to the surge in weapons demand driven by the war, the Russia–Ukraine conflict also led Europe to reduce imports of Russian pipeline gas and instead increase purchases of U.S. liquefied natural gas (LNG). This shift triggered a boom cycle for LNG carriers, helping drive Hanwha Aerospace’s shipbuilding revenue up by 17.2% in 2025.

With the outbreak of the U.S.–Iran conflict, Hanwha Aerospace could see another round of earnings growth. This expectation helps explain why the company’s stock surged 24.7% on the first trading day after the conflict began.

$PLUS Korea Defense Industry Index ETF(KDEF)$ ’s second-largest holding, Hyundai Rotem, is a company engaged in rail transportation, defense, and industrial equipment. Its defense segment mainly produces tanks, armored vehicles, and other military equipment. In 2025, defense revenue reached 3,215.3 billion KRW, accounting for as much as 55% of the company’s total revenue.

Following the outbreak of the Russia–Ukraine war in 2022, Hyundai Rotem’s defense business experienced rapid expansion. Revenue growth reached 18% in 2022 and accelerated to around 50% in both 2023 and 2024.

Compared with AI, the defense industry may lack the same explosive growth potential, but it tends to be more sustainable. In particular, the “America First” policies promoted by Donald Trump this year have reshaped the global order established after World War II. As a result, countries across Europe, the United States, and many other regions are increasing defense spending.

From 2017 to 2022, global defense spending grew at an average annual rate of about 2.7%. By 2024, the growth rate had already accelerated to around 9%.

The outbreak of the US–Iran conflict is also likely to push global military spending even higher. For example, Israel has planned an additional $10.4 billion in defense spending, equivalent to about 1.5% of its GDP.

Meanwhile, US allies in the Middle East have consumed large quantities of missile inventories while intercepting Iranian drone attacks. The Pentagon estimates that in just the first two days after the conflict began, the United States spent roughly $5.6 billion on munitions. The US Congress is currently discussing an additional defense appropriation of up to $50 billion.

The collapse of the global order may have long-term consequences. Even after Trump’s presidency ends, damaged alliances may not easily recover. As geopolitical divisions deepen, the defense sector could become a long-term beneficiary.

Therefore, for investors concerned about a potential AI bubble, it may be worth paying attention to Korea’s defense-focused ETF, $PLUS Korea Defense Industry Index ETF(KDEF)$ !