Growing investor caution toward the AI trade, coupled with persistent geopolitical tensions in the Middle East, has been weighing on sentiment toward South Korean equities.

However, these near-term headwinds do little to undermine the country’s longer-term growth story. With the outlook for AI and semiconductor demand remaining constructive, South Korea remains well-positioned to benefit from the next phase of AI-driven growth, making it one of Asia’s more compelling long-term investment opportunities.

Surging exports and resilient manufacturing activity continue to support South Korea's long-term growth outlook. Meanwhile, the government's growing focus on boosting spending on AI and semiconductors provides another structural tailwind, strengthening the country's position in these high-growth industries and reinforcing its long-term growth potential.

South Korea's government is making an aggressive push to strengthen its position in the global AI race. According to Reuters, on Tuesday, the government proposed a record $596.92 billion spending plan for 2027, a 12.8% increase from 2026 and the largest annual increase on record. The record spending increase is being supported by a windfall from South Korea's semiconductor industry.

Strong Exports Strengthen South Korea’s Bull Case

South Korea's export momentum further strengthens the long-term investment outlook. According to data from South Korea’s Ministry of Trade, Industry and Resources, the economy’s exports jumped 68.7% year over year to $98.25 billion in August, driven by a surge in semiconductor shipments, as quoted on Korea Times.

The semiconductor industry remains a key pillar of South Korea's economic growth, with the ongoing AI boom providing a powerful tailwind for the country's long-term growth. Per the abovementioned article, the economy’s semiconductor exports jumped 209% to $46.65 billion in August.

Semiconductor shipments have now exceeded $40 billion for three consecutive months, signaling sustained demand for South Korean chips.

Kospi Pullback: Is It Time to Buy the Dip?

KOSPI, the country’s benchmark index, fell around 4% on Wednesday, declining about 4.2% over the past five trading sessions and reflecting the recent pressure weighing on South Korean equities.

However, the short-term weakness does little to alter the country's long-term investment thesis. The market's impressive longer-term performance, with the benchmark index up approximately 55.4% year to date and 108% over the past year, highlights the underlying momentum behind South Korea's long-term growth story.

For investors who remain constructive on the long-term outlook for AI infrastructure and semiconductor demand, the pullback could provide a compelling entry point. The funds we have highlighted below have also pulled back, giving investors a chance to buy the dip in South Korea ETFs while gaining exposure to the country's long-term growth story at more favorable levels.

How Should Investors Play South Korea ETFs?

Home to some of the world's leading chipmakers, South Korea offers investors exposure to the global semiconductor ecosystem and its key players. But the opportunity comes with a catch: high concentration risk.

The country's market is heavily tilted toward technology and semiconductor stocks, particularly SK Hynix and Samsung Electronics, making it particularly vulnerable to sharp swings when sentiment toward AI and tech stocks weakens. However, the country's long-term investment case remains compelling.

South Korea ETFs offer a convenient way to access this growth story while spreading exposure across multiple companies. However, given the concentration risk that accompanies the country's growth potential, these ETFs may be better suited as a strategic satellite allocation rather than a core international holding.

Investors with a constructive long-term view of the broader AI trade, particularly the semiconductor sector, may consider allocating a measured portion of their tech exposure to South Korea rather than making a major allocation. This approach allows investors to participate in South Korea's potential upside while limiting the portfolio impact of its concentrated market structure and elevated volatility, particularly amid the recent swings in its stock market.

For investors with a higher risk tolerance and stronger conviction in the long-term AI theme, a larger allocation could offer greater upside potential.

Accessing South Korea Through ETFs

Investors can consider the below-mentioned funds to gain exposure to South Korea.

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

iShares MSCI South Korea ETF seeks to track the performance of MSCI Korea 25/50 Index with a basket of 78 securities. The fund charges an annual fee of 0.59% and has a dividend yield of 1.16%.

EWY has Zacks ETF Rank#2 (Buy) with a Medium risk outlook. The fund has a one-month average trading volume of about 16.64 million shares and has gathered an asset base of $27.49 billion. The fund has double-digit allocations to SK Hynix (23.7%) and Samsung Electronics (22.2%).

iShares MSCI South Korea ETF has delivered impressive gains, rising about 127% over the past year and 66% year to date. The fund has also remained in positive territory over the past three months, gaining around 2.8%. However, the ETF has recently pulled back, falling about 19.5% over the past month and another 0.8% in pre-market trading Wednesday.

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

Franklin FTSE South Korea ETF seeks to track the performance of FTSE South Korea RIC Capped Index with a basket of 158 securities. The fund charges an annual fee of 0.09% and has a dividend yield of 2.54%.

FLKR has Zacks ETF Rank#2 (Buy) and has a one-month average trading volume of about 707,000 shares. The fund has amassed an asset base of $1.69 billion and has double-digit allocations to SK Hynix (18.4%) and Samsung Electronics (17%).

Franklin FTSE South Korea ETF has delivered impressive gains, rising about 130% over the past year and 72% year to date. The fund has also remained in positive territory over the past three months, gaining around 9.8%. However, the ETF has recently pulled back, falling about 14.4% over the past month and another 1.1% in pre-market trading on Wednesday.

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

Matthews Korea Active ETF employs an active strategy, targeting secular growth opportunities across South Korea with a basket of 51 securities. The fund charges an annual fee of 0.79% and has a dividend yield of 1.51%.

MKOR has gathered an asset base of $139.5 million and has a one-month average trading volume of about 5,400 shares. Samsung Electronics is the fund's largest holding, accounting for 18.8% of the assets, followed by SK Hynix at 4.2%.

Matthews Korea Active ETF has delivered impressive gains, rising about 106% over the past year and 62% year to date. The fund has also remained in positive territory over the past three months, gaining around 2.2%. However, the ETF has recently pulled back, falling about 13.7% over the past month and another 2.4% on Tuesday.

For a More Diversified Exposure to South Korea

For investors seeking diversified, less concentrated exposure to the Asian economy, the following funds may be worth considering.

First Trust Asia Pacific ex-Japan AlphaDEX ETF (FPA Quick QuoteFPA - Free Report) has an exposure of about 59% to South Korea.

iShares Asia 50 ETF (AIA Quick QuoteAIA - Free Report) has an exposure of about 27% to South Korea.

Freedom 100 Emerging Markets ETF (FRDM Quick QuoteFRDM - Free Report) has an exposure of about 25% to South Korea.