Source: Wall Street Insight

If we turn back two years, it would be hard to find a Korean who believes that the fastest place to create wealth would shift from the apartment buildings in Gangnam to the trading hall in Yeouido, Seoul.

For the past twenty years, the wealth code for Korean households has been almost singular — buying a house.

Whether it’s a school district home in Gangnam, Seoul, or newly built housing in Gyeonggi-do, just being able to enter the market almost means an increase in wealth. Data from the Bank of Korea shows that real estate has long accounted for more than sixty percent of household assets, while stocks have typically only made up a single-digit percentage of total household assets. For the vast majority of Koreans, the stock market feels more like a casino; real estate is the true repository of wealth.

But as we entered 2026, things suddenly experienced a fundamental upheaval.

J.P. Morgan provided a shocking figure in its latest report: In this super bull market driven by both AI and policy reform, the Korean KOSPI index has surged 109% year-to-date, outpacing global markets (the S&P 500 only up by 11% during the same period), resulting in a remarkable increase in the book value of domestic stocks and funds owned by Korean households, which has surpassed 1,000 trillion won (approximately 730 billion USD).

What does 1,000 trillion won mean? It has reached 4.5 times the peak during the retail investor frenzy in 2020 (234 trillion won) and is close to 40% of South Korea's annual GDP. This represents a wealth creation speed never seen before in the history of the Korean capital market. For a country with a total population of only 51 million, this almost means that the average book wealth of each Korean has increased by nearly 20 million won.

However, this wealth creation banquet is far more complex than the numbers themselves . Behind it are three intertwined clues: the AI-driven super cycle in semiconductors, capital market reforms led by the Korean government, and a series of policies that forcibly lock funds in the stock market as part of housing market controls. The combination of these three factors has jointly given rise to this unprecedented wealth effect.

Meanwhile, the highly concentrated structural risks, crazily accumulated leverage, and the unchanged speculative impulses of retail investors are testing how long this banquet can last.

Every previous bull market has been a sad story for retail investors

The Korean stock market is not lacking bull markets. The problem is, every bull market ultimately turns into a sad story for retail investors.

From the internet bubble to the new energy boom and then to the retail frenzy during the pandemic, every time the market rises, retail investors flock in, eager for high-frequency trading and chasing hot themes. Small-cap and concept stocks are often driven to outrageous valuations. However, once the market ends, wealth evaporates quickly.

This is also why the Korean stock market has long experienced the famous "Korea Discount." Given the same corporate profitability, the valuations of Korean companies often fall below those of their U.S. and Japanese counterparts. Investors are unwilling to assign higher valuations, not because Korean companies are unprofitable, but because they do not believe these profits will ultimately return to shareholders.

Unclear governance and major shareholder interests overriding those of minor shareholders represent the unsolved knot in the Korean capital market for decades. This is also why money made in the stock market does not flow back to consumption and does not remain in the market — it merely acts as a "ammo depot" for buying houses.

Understanding this vicious cycle allows for comprehension of what is truly different about this bull market: it is the first time that two forces are working together to dismantle this cycle.

AI is the fuse, and institutional reform is the foundation

One force comes from the demand side and is called AI.

From the index contribution perspective, Samsung Electronics and SK Hynix are the core driving forces of this wave. As HBM (High Bandwidth Memory) becomes the most critical infrastructure of the AI era, these two memory giants have completely exploded — this year, Samsung Electronics has risen by 201%, and SK Hynix has skyrocketed 256%, together contributing about 72% of the KOSPI’s year-to-date increase, with their total market capitalization rising to 54% of the entire index.

The super cycle in semiconductors has injected unprecedented fundamental support into the Korean stock market.

The other force comes from the supply-side institutional reform.

Under the "Value-Up" capital market reform framework promoted by the South Korean government, problems that have plagued the Korean market for over twenty years are being systematically resolved: amending corporate laws to establish fiduciary duties for directors to all shareholders, strengthening protections for minority shareholders, and firmly promoting listed companies to enhance dividends and buyback levels.

The reforms have provided a serious institutional basis for treating "Korea Discount" for the first time, allowing stocks in the eyes of Korean households to transition from "speculative tools" to "long-term assets" for the first time.

It is the combination of these two forces that has opened the door for Koreans to flood into the stock market.

The total number of active stock trading accounts has soared to a historical high of 107 million, and stocks and funds now account for 23% of the financial assets of Korean households, exceeding the 21% historical peak during the pandemic in 2020.

The government's third move: blocking money from flowing back to the housing market

But for the wealth effect to truly transform into consumption momentum, merely having a bullish market and reforms is not enough.

The South Korean government has done a third thing, and it is the most crucial: it proactively blocked the channels for money to flow back to the housing market.

This is key to understanding this round of "super cycle." In the past, it didn’t matter if the stock market rose, as the money earned would ultimately flow into the housing market as down payments; the stock market was merely a reservoir for real estate.

This time, the government has completely locked down these channels with a series of extremely strict housing market controls: the mortgage loan cap for the Seoul metropolitan area is set at 600 million won, all multi-property owners are prohibited from applying for housing loans, and an announcement has been made to increase housing supply by 1.35 million units before 2030. By May 2026, the temporary capital gains tax benefits enjoyed by multi-property owners are officially set to expire.

The expectation of further increases in housing prices is beginning to cool. The 1,000 trillion won in wealth created by the stock market has, for the first time, not been channeled into real estate but has been forced to remain within the financial system's internal cycle — and is starting to facilitate real consumption.

In the first quarter of 2026, the sales growth of South Korean department stores reached 17%; in the first four months of this year, the number of new registrations for luxury imported cars soared 41% year-on-year; luxury goods and personal credit card spending have significantly rebounded. The wealth effect is transforming from book numbers into restaurant turnover rates around Yeouido, creating longer queues in front of Shinsegae Department Store.

J.P. Morgan estimates in its report that even taking into account the Bank of Korea's historically conservative wealth conversion rate of 1.3%, this asset increase of 1,065 trillion won will generate approximately 14 trillion won in incremental consumption; if estimated at the higher 4% conversion rate seen in Western markets, the wealth effect could even reach 43 trillion won, equivalent to 1.6% of GDP. They characterize this round as a "super cycle" of wealth effects.

But not everyone is at the main table

However, not everyone is sitting at the main table during this banquet.

Wealth distribution is extremely uneven. This wave is dominated by two super-weighted stocks, while retail investors hold only 15%-20% of Samsung and SK Hynix, much lower than their average holding of about 35% in the entire KOSPI market — they systematically missed out on the main uptrend.

Data from J.P. Morgan shows that the average return of the top 20 stocks that retail investors were most enthusiastic about net buying in 2025 is only 44% year-to-date in 2026, lagging the market by a full 65 percentage points.

The stratification of consumption is equally brutal. The wealth effect has first and most greatly benefited high-end consumption: luxury goods, imported luxury cars, and high-end department stores have become the biggest winners.

Large supermarkets, online fast-moving consumer goods e-commerce (like Coupang, which has seen its stock price fall by 29% this year), and the takeout industry, which represent the everyday demands of the masses, have hardly enjoyed any of this wave of benefits, and takeout is even facing headwinds as people return to in-person fine dining.

This super cycle is essentially a highly concentrated redistribution of wealth rather than an inclusive prosperity.

How far can the train loaded with leverage go?

In Seoul's buses and subway stations, ads for index ETFs are everywhere.

This should be a reassuring signal — the popularity of ETFs typically indicates that retail investors are transitioning from betting on single stocks to diversified allocations, marking one of the signs of a mature market.

However, in Korea, this signal is quickly distorted by another set of data: leveraged ETFs account for only 3.7% of total ETF assets but contribute nearly 20% of the entire ETF market's trading volume. The government even approved a "double-leverage single-stock ETF" that tracks Samsung and SK Hynix, adding more fuel to the fire at the market's most frenzied moments.

Korean retail investors bought ETFs, but they turned this risk-diversifying tool into a means for doubling down on their bets.

What is even more unsettling is the pervasive atmosphere of FOMO throughout the market.

During NVIDIA CEO Jensen Huang's visit to Korea, any company rumored to meet him saw its stock price skyrocket without exception. Rumors that he would wear a Doosan Bears jersey to attend a baseball game caused Doosan Group stocks to all hit the ceiling that day — only to plummet back down once the official confirmation arrived. The market is operating on an extremely simplified logic: as long as you can meet Jensen Huang, you can catch some涨停 (daily limit up).

The risks do not only stay at the emotional level.

The balance of margin trading has skyrocketed to historically rare highs, with more than half of the total market capitalization concentrated in just two stocks, deeply tying the market’s fate to the global AI industry's prosperity.

For the past twenty years, the most popular saying among South Korean youth has been: "If you can’t afford to buy a house in Gangnam, you will never catch up to wealth growth."

But today, amidst the flashing numbers in the Yeouido trading hall, more and more Koreans are beginning to experience another possibility: household wealth appreciation may not only rely on concrete and steel but can also be tied to the train of global technological innovation.

But how far can this train, filled with leverage and frenzy, actually go? The real test is just beginning.

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