With the onset of the Middle East conflict, investors shifted toward safe-haven assets, pulling capital out of emerging and developing markets. The outflows were particularly pronounced in Asian economies, which are heavily reliant on oil shipments through the Strait of Hormuz, making countries like South Korea especially vulnerable.

However, this risk-off sentiment now appears to be reversing. Investors are gradually turning more risk-on, increasingly shrugging off the uncertainty surrounding the still-ambiguous trajectory of the Middle East conflict. Global markets are recouping losses tied to the initial shock and are rebounding toward pre-war levels, as war-risk premiums unwind rapidly.

South Korea is no exception. The KOSPI, South Korea’s benchmark index, surged to an all-time high of above 6,400 on Wednesday, gaining about 3.06% over the past five days. The market continues to stand out as one of Asia’s most compelling plays, with the index up 15.01% over the past month and an impressive 51.92% year to date.

However, rather than increasing exposure solely on the back of optimistic geopolitical headlines, investors may be better served focusing on the country’s underlying structural strengths, which offer a more durable investment case. Investors are rotating back to the AI growth theme, a key driver of equity market momentum, particularly in markets with strong tech exposure, such as South Korea.

According to the Korea Times, South Korea’s rally has been driven by optimism around semiconductor earnings and steady foreign inflows, allowing the index to post the strongest gains among G20 markets so far in April, despite Middle East tensions.

South Korea Economy Seen Returning to Growth in Q1

According to a Reuters poll of economists, robust semiconductor exports and resilient domestic demand likely lifted South Korea back to growth in the first quarter, though Middle East tensions posed downside risks.

Per the abovementioned Reuters article, the Asian economy likely grew 1.0% quarter on quarter in the first quarter, rebounding from a late-2025 contraction. On an annual basis, GDP growth is seen accelerating to 2.7% from 1.6%, based on a separate economist survey conducted in mid-April.

Additionally, per official data, as quoted in the above article, exports surged in March, led by a 151.4% jump in semiconductor shipments to a record $32.83 billion, fueled by strong AI-driven server demand.

Bullish Calls Strengthen the Case for South Korea Exposure

Increasingly bullish calls from global investment banks are backing the strategy of raising exposure to Korean equities. As quoted on another Korea Times article, Goldman Sachs sees the KOSPI crossing 8,000 within a year on stronger earnings forecasts. Additionally, JPMorgan was even more optimistic, forecasting a potential rise to 8,500 in a strong semiconductor cycle.

Together, these increasingly upbeat projections underscore the strengthening investment case for South Korea, particularly as the country remains well-positioned to benefit from the ongoing AI-driven demand cycle.

Foreign Inflows Strengthen Korea’s Equity Story

Foreign and institutional investors drove the rally with strong net buying, while retail investors sold off heavily, as per a Korea Times article. Foreign and institutional investors recorded net purchases of 1.75 trillion won ($1.19 billion) and 796 billion won, respectively, while retail investors offloaded 2.36 trillion won.

Beyond South Korea’s strong growth narrative and compelling investment opportunities, a declining U.S. dollar is providing an added tailwind for capital inflows into South Korea. According to TradingView, the U.S. Dollar Index has fallen 1.19% over the past month and 0.45% over the past six months.

Accessing South Korea Through ETFs

South Korea ETFs continue to shine, positioning the country among the most attractive investment destinations in Asia. Below, we have highlighted a few funds that offer exposure to South Korea’s markets.

Franklin FTSE South Korea ETF (FLKR Quick QuoteFLKR - Free Report)

Franklin FTSE South Korea ETF has double-digit exposure to information technology (48.08%), industrials (20.87%) and financials (10.92%). Its top two holdings, SK Hynix and Samsung Electronics, dominate the portfolio with weightings of 22.83% and 18.06%, respectively.

Franklin FTSE South Korea ETF charges an annual fee of 0.09% and has a dividend yield of 2.61%. The fund has gained 14.65% year to date and 111.11% over the past year.

iShares MSCI South Korea ETF (EWY Quick QuoteEWY - Free Report)

iShares MSCI South Korea ETF has double-digit exposure to information technology (49.61%), industrials (20.87%) and financials (9.97%). Its top two holdings, Samsung Electronics and SK Hynix, dominate the portfolio with weightage of 22.83% and 22.22%, respectively.

iShares MSCI South Korea ETF charges an annual fee of 0.59% and has a dividend yield of 1.39%. The fund has gained 22.49% year to date and 126.98% over the past year.

Matthews Korea Active ETF (MKOR Quick QuoteMKOR - Free Report)

Matthews Korea Active ETF has double-digit exposure to information technology (45.8%), industrials (24.1%) and financials (10.8%). Its top two holdings, Samsung Electronics and Samsung Electro-Mechanics, dominate the portfolio with weightings of 19.2% and 5.4%, respectively.

Matthews Korea Active ETF charges an annual fee of 0.79% and has a dividend yield of 1.74%. The fund has gained 17.42% year to date and 96.72% over the past year.