SK hynix Has Passed Samsung. The KOSPI Is Now Two Companies

On 22 June, SK hynix overtook Samsung Electronics to close at number one by market capitalization on the KOSPI — South Korea's benchmark equity index — at ₩2,079tn. The first reversal in 25 years. Except this "number one" counts common stock only. Add Samsung Electronics' preferred shares (about ₩180tn) and Samsung in aggregate is ₩2,246tn, still first. A market where the ranking flips on how you count a single line of common stock. The wobble itself foreshadows what the KOSPI has become. The top four names are half the index — and those four converge to just two companies.

Earnings Carry the Rally

First, to be clear: this rally is not a valuation bubble. In 1Q26 SK hynix posted revenue of ₩52.6tn and operating profit of ₩37.6tn. A 72% operating margin, its first quarter above ₩50tn in revenue, the largest in its history. Numbers delivered in Q1, nominally the off-season. AI and HBM (high-bandwidth memory) demand drove those numbers.

Absolute profit is larger at Samsung. Samsung Electronics' 1Q26 operating profit, on a single reported basis, was ₩57.2tn — ahead of SK. That is a composite result spanning foundry, mobile, and commodity DRAM. And yet the market sided with SK. What it priced was not the size of the profit but the purity of the growth that HBM represents.

Table: Samsung vs SK hynix. Profit scale to Samsung, growth premium to SK. Samsung's ₩57.2tn is a single reported basis (med); SK's ₩37.6tn is the confirmed earnings figure (high). Sources — each company's 1Q26 earnings release (2026-04), brokerage-consensus forward PER (mid-May 2026), Korea Exchange market cap (2026-06-22).

Three months ago the gap stood at Samsung 8.08x forward PER, SK 5.28x — 2.80 points. It inverted in three months. Even after that, SK's 12-month forward PER sits in the 6x range, below the global semiconductor average. And it holds even though, over the past year and a half, SK's shares have risen 2.6 times as much as Samsung's. This is a rally where earnings pulled the price up, not where the price ran ahead of earnings. The engine is the cycle in which memory rose from a back-end supporting act to the heart of the system (2Q HBM share: SK 62%, Micron 21%, Samsung 17%).

But the very fact that the forward PER looks low in the 6x range is a trap. The denominator — forward earnings — already sits on a cycle-peak operating margin of 72%. Memory earns most at the peak, which is exactly when the PER looks lowest. The moment it looks cheap is the top — the oldest trap in cyclicals. The strength is genuinely earnings-backed. But if those earnings are a cycle peak, a low forward PER is not a basis for comfort but the opposite. Valuation risk does not separate from cycle risk. As we'll see, the risk this piece records in the downside scenario — that "the 72% margin runs in reverse" — is the underside of today's cheap-looking PER.

But the Index Is Two Companies

The trouble is that this strength does not resemble the index as a whole.

The combined weight of the KOSPI's top four names — Samsung Electronics, SK hynix, Samsung Electronics preferred, and SK Square — swelled from 38.83% on 2 January to 49.49% on 6 May. Half the index. But by issuer, these four tickers are only two. Samsung Electronics preferred is Samsung's preferred stock; SK Square is the SK-affiliated holding company that owns the stake in SK hynix. Half of a KOSPI that looked like "four-name diversification" actually converges to two companies. Concentration disguised as diversification. Buy an ETF wearing the KOSPI label and half of it is a bet on these two.

A single day, 6 May, shows what that means. The KOSPI surged 6.45%, but 200 names rose and 679 fell. The index set off fireworks while three-quarters of the market sat in the red. The index did not rise; the handful of names that hold it up rose. This is a snapshot of one +6%-plus mega-rally day, but the structure sets the direction. As long as the top four make up half the index (49.49%, as of 6 May), the KOSPI is not a thermometer of the Korean economy but a derivative levered to the HBM cycle.

Strength Invites Selling

Here the most counterintuitive thing happens. The more the index rises, the more foreigners sell.

This year foreigners have net-sold roughly ₩120tn of Korean equities. In May alone the figure topped ₩44tn, and selling pressure carried into June. Numbers like these usually read as "foreigners are bearish on Korea." Yet the core driver the Street points to is not a bearish outlook but rebalancing. For global pension funds and asset managers that hold country weights constant, a sharp rally in Korean equities pushes Korea's weight in the portfolio past target. They then have to trim Korean stock mechanically. Selling out of strength.

Rebalancing is only one reading, the one that sits comfortably at home. To a foreign manager measuring returns in dollars, the won at 1,540 per dollar is an FX loss that eats won-denominated returns, and hedging cost, the Korea discount — the long-standing gap at which Korean equities trade below global peers — and active de-risking pile onto the selling. ₩120tn YTD is not a figure that weight adjustment alone explains.

The exit is the exchange rate. On a weekly closing basis on 24 June, the won passed 1,540 per dollar for the first time in 17 years and approached 1,550 intraday. Foreign net selling of ₩11tn over the last four sessions drove that move. The Bank of Korea's policy rate, held at 2.5% for an eighth consecutive meeting (as of the May 2026 meeting, against a hawkish Fed), offers little rate incentive to keep departing capital from leaving.

A weak won does not work in only one direction. Samsung and SK are exporters that book revenue in dollars, so the same 1,540 inflates their won-translated earnings. Part of the very earnings that made the rally comes from this exchange rate. The currency is at once the exit draining capital from the index and the entrance feeding the chip profits that hold the index up. It cuts the same concentration both ways.

Table: supply and demand inside a bull market. The big holders sell, individuals absorb. Sources — Korea Exchange investor-type trading (2026-06), Seoul FX market (2026-06-24).

Pension funds, too, net-sold ₩2.31tn in June — the largest monthly figure since April 2021, five years. Foreigners sell into strength for weight reasons, pensions for profit-taking, and individuals absorb the supply. It is supply that stops once weights return to target, but the higher the index climbs, the more supply piles up to be reversed. That is why the market calls this "the paradox of the rising market."

Within June the center of gravity of that same foreign selling shifted once. Just two weeks earlier, on 8 June, the KOSPI hit a -8.37% circuit breaker as Samsung and SK fell about 10% each and the won was pushed to 1,560 per dollar. Then the main driver was risk-off flight on a hawkish Fed and Middle East oil. Two weeks on, the same foreign selling and the same won weakness carried a larger share of rebalancing into the rally. That does not mean risk-off was gone: on 26 June the KOSPI slumped again, -5.8%, accompanied by a sidecar — a halt on program trading — and a circuit breaker. Inside the late-June foreign selling, rebalancing and risk-off were intermixed, and the 26 June plunge is the evidence of that mixture. So read the direction off the single headline "foreigners are selling" and you read it wrong. You have to first separate what they are selling for.

The KOSDAQ Is Closer to a Mirror Image

The shadow of this concentration is the KOSDAQ — Korea's tech-and-small-cap secondary exchange. We read "the KOSPI advances while the KOSDAQ falls" as a decoupling of two markets, but the two are the entrance and exit of a single flow. The relative vacuum left by capital sucked into large-cap semiconductors shows up in the KOSDAQ. This is not data that directly shows the capital moving; it is a reading that follows from the structure of the concentration, and I will not pin down the KOSDAQ's June level here.

The institutional side is what's well-supported. The KOSDAQ promotion-relegation system under discussion (a "premium," or first-division, league) is estimated to raise the semiconductor weight in the KOSDAQ150 from 28.5% to 50.0% in the premium market, and to cut healthcare from 28.2% to 23.7%. The market's structure is being redesigned to load in more semiconductor weight. A signal that the concentration is hardening past transient flow into index design.

So, What to Watch

KOSPI 8,900 is not a signal that the Korean economy has improved. And that 8,900 is not even the current coordinate. It broke 8,900 on 18 June, right after a hawkish FOMC, but gave back roughly 5% from the high — 8,471 on 24 June, 8,411 on 26 June, with a sidecar and circuit breaker. At publication the index is not 8,900 but in the 8,400s — and two circuit breakers (8 June -8.37%, 26 June -5.8%) have each made that fragility real once. This number is not a coordinate for the whole Korean economy but a coordinate for two companies. The semiconductor cycle is one axis tied to the real economy through exports and capex, but the index does not represent that whole real economy. What ultimately sets the coordinate is not any macro indicator but the direction of the HBM cycle.

One more thing. Even that 8,900, converted into dollars, dulls the sense of a record. With the won at its weakest in 17 years, the KOSPI a foreigner sees has not risen as much as the won-denominated record. A good part of the "all-time high" has evaporated in the exchange rate.

So the outlook is better seen as branches than as a verdict.

Table: scenarios, not a verdict. All are verifiable propositions; which one held will be settled as HBM4 volume production proceeds. Sources — Samsung announcement, UBS, Counterpoint (2026, forecast), SK 1Q26 earnings (2026-04), KRX (2026-05~06). Not investment advice.

The reader's order of checks follows from this. Watch three exposures rather than the KOSPI level. First, the HBM cycle. Is my position a function of memory's cycle? Second, the won. As long as foreign rebalancing continues, won weakness proceeds independently of the index. Third, concentration. Is the KOSPI index you believed to be "Korea diversification" actually a position that stakes half on a single semiconductor bet? This concentration has produced passive holders' return so far, and the same concentration is their risk.

The strength is real and the fragility is real. They are the same fact. One concentration — that half the index is two companies — both makes this rally and imperils it. So the next time you see the headline "KOSPI all-time high," ask once more. Did Korea rise, or did two companies rise — and only in won?