The strength of investor conviction in the AI theme can be seen in South Korea's market performance. The country has become one of Asia's standout growth stories, with its market rally gaining momentum as investors increasingly bet on the long-term expansion of AI and the semiconductor ecosystem that supports it.

The performance of South Korea's benchmark KOSPI index is a clear example of this. The index closed above the 8,800 level on Tuesday, rising 7.79% over the past five trading sessions and 30.60% over the past month. The scale of the rally has been remarkable, helping South Korea emerge as the world's sixth-largest stock market. The surge has pushed the combined market capitalization of Korea-listed companies above the $5 trillion mark.

The KOSPI has surged 108.34% year to date, gained 119.0% over the past six months and advanced 226.84% during the last year. The rally reflects growing investor appetite for AI-driven growth opportunities, particularly in tech-heavy markets like South Korea.

While South Korea's explosive market performance may leave investors wondering whether they've missed the trade, Goldman Sachs argues that the story is far from over. The investment banking giant recently raised its 12-month KOSPI target to 12,000, suggesting the benchmark index could climb more than 35% from current levels, as quoted on CNBC.

South Korea's Economic Numbers in Detail

The economic outlook for South Korea has improved significantly, with the OECD raising its growth forecast for the country to 2.6% from 1.7%, according to the country’s Ministry of Finance and Economy, as quoted on the Korea Times. The revision is particularly notable, given that the organization had cut its forecast earlier this year amid concerns over Middle East tensions.

The upward revision reflects expectations that strong semiconductor exports will more than offset risks associated with ongoing tensions in the Middle East. Notably, South Korea’s ministry added that the economy received the largest upward growth revision among G20 economies, highlighting the extent to which its semiconductor-led recovery is exceeding expectations.

Per preliminary trade data released earlier this week, as quoted on Reuters, South Korea’s exports surged 53.2% year over year in May to a record $87.75 billion, marking the 12th consecutive month of growth and the strongest annual increase since 1984, underscoring the country's central role in the global AI and semiconductor supply chain. The performance was driven largely by semiconductors, with chip exports soaring 169.4% to an all-time monthly high of $37.16 billion.

Despite the improving growth outlook, investors should not overlook the risks. Ongoing tensions in the Middle East and stalled peace negotiations remain a key concern for South Korea, particularly given the country's reliance on imported energy and export-oriented economy. Continued uncertainty surrounding peace negotiations could keep oil prices elevated, adding to inflationary pressures, while softer export demand from the region may weigh on the country's trade outlook and broader economic momentum.

Where Do South Korea ETFs Fit in a Portfolio?

South Korea's market rally has put the country firmly on investors' radar, and for good reason. For growth-oriented investors, South Korea ETFs provide a compelling way to gain exposure to the country's technology-driven economy.

The market's heavy concentration in Samsung Electronics and SK Hynix introduces a higher degree of risk and offers a highly concentrated bet on the continued expansion of AI infrastructure and semiconductor demand. Even though this concentration can increase market swings and volatility, it also positions investors to benefit disproportionately if these trends continue to gain momentum.

Importantly, investors should not view South Korea ETFs as a traditional diversification option aimed at reducing exposure to U.S. equities. Given the dominant role of Samsung and SK Hynix in the country's stock market, the investment thesis remains closely tied to the long-term growth of semiconductors and the AI infrastructure.

Instead, South Korea ETFs can be viewed as a strategic way to diversify within the broader semiconductor and AI theme. They provide exposure to the global chip ecosystem, allowing investors to broaden their participation in the next phase of the AI-driven growth story rather than reduce it.

Accessing South Korea Through ETFs

Investors can consider iShares MSCI South Korea ETF (EWY Quick QuoteEWY - Free Report) , Franklin FTSE South Korea ETF (FLKR Quick QuoteFLKR - Free Report) and Matthews Korea Active ETF (MKOR Quick QuoteMKOR - Free Report) to increase their exposure to one of Asia’s top investment opportunities.

Regarding fund performance, on average, the abovementioned funds have added about 58.73% year to date. Over the past year, EWY has stood out among the others, gaining 187.08%.

On a side note, investors seeking a more targeted way to gain exposure to the memory chip segment of the semiconductor industry may consider Roundhill Memory ETF (DRAM Quick QuoteDRAM - Free Report) . The fund allocates nearly 50% of its portfolio to South Korea, with SK Hynix and Samsung Electronics accounting for approximately 26.34% and 19.56% of the assets, respectively.

Amplifying the South Korea Bull Case

For investors with a higher risk tolerance and a strong conviction in South Korea's growth story, leveraged ETFs offer a way to amplify exposure to the country's ongoing market rally and technology-driven economic momentum. Leveraged ETFs can be powerful tools for investors seeking to magnify short-term market moves, as these products aim to deliver 2x or 3x the daily performance of an underlying index through the use of derivatives such as swaps, futures contracts and other financial instruments.

However, leveraged ETFs carry significantly higher risks than traditional funds and are best suited for short-term tactical positioning, as their amplified return potential also comes with heightened volatility.

Investors can consider Direxion Daily MSCI South Korea Bull 3X ETF (KORU Quick QuoteKORU - Free Report) , which seeks the daily investment results of 300% of the performance of the MSCI Korea 25/50 Index. Charging an annual fee of 1.32%, the fund has given staggering returns of 107.63% over the past month and 225.31% year to date. Over the past year, KORU has added 1,360.74%.