KOSPI and KOSDAQ Forecast 2026: Key Investment Strategies

The South Korean market is entering a phase of fundamental change, moving beyond cyclical recovery into a structural growth narrative supported by government policy. For 2026, major global investment banks forecast Korea’s GDP growth to hit 1.6% to 2.2%, driven by robust equipment investment in semiconductors and a moderate recovery in domestic consumption. The key drivers for stock market performance will be record-high corporate earnings and a successful rollout of corporate governance reforms.

Market Forecasts & Strategic Sector Focus for 2026

The outlook for the KOSPI is highly optimistic, with some brokerages projecting a base scenario of 5,000 and a bull case reaching 7,500. This bullishness is founded on a unique event in Korean market history: the simultaneous expansion of both Earnings Per Share (EPS) and the Price-to-Earnings (P/E) ratio.

KOSPI: The Chip & AI Core

• Semiconductors: This sector remains the primary engine. The AI boom ensures sustained demand for HBM and memory chips, projecting record-high operating profits for the largest chipmakers. This “restocking cycle” is expected to continue through mid-2026.
• AI Hardware Ecosystem: Focus is shifting to companies that support the AI build-out, including suppliers of data-center cooling systems, power components, and advanced materials. This widens the pool of KOSPI beneficiaries beyond just the memory giants.
• Automobiles: Hyundai Motor and Kia are top picks among foreign banks, driven by strong US sales of their expanded hybrid lineups, improved manufacturing efficiency, and favorable valuation compared to global peers.
• Defense & Nuclear Energy: Identified as strategic growth sectors, supported by national policy and expanding global export contracts, offering defensive growth plays.

KOSDAQ: Biotech and Content Recovery

While the KOSPI led the recent rally, expectations for the KOSDAQ are improving for 2026. The market is expected to benefit from government support funds and a rebound in the Business-to-Consumer (B2C) segment.

• K-Content & Gaming: Operating profit forecasts for major entertainment and gaming stocks (e.g., HYBE, JYP, Pearl Abyss) are showing unusual strength, signaling a strong performance recovery in 2026 as new game releases and global Hallyu momentum accelerate.
• Policy Support: New KOSDAQ revitalization policies, such as increasing the mandatory ratio of public offering shares to KOSDAQ venture funds, are expected to boost capital inflow into SMEs.

2. Corporate Governance: Mandatory Transparency in 2026

The most pivotal structural change for foreign investors is the acceleration of corporate governance reforms designed to tackle the long-standing “Korea Discount.”

Expanded Governance Disclosure

Starting in 2026, the requirement for mandatory Corporate Governance Reports will be expanded to all KOSPI-listed firms. This is a significant step toward transparency, forcing smaller and medium-sized KOSPI companies to report on their governance practices, director remuneration, and shareholder communication channels, which will level the playing field for foreign investors who rely on timely, standardized information.

Stronger Minority Shareholder Rights (Effective Sept. 2026)

Sweeping amendments to the Commercial Act, anticipated to be effective around September 2026, will empower minority investors:

• Mandatory Cumulative Voting: For large listed companies (assets > KRW 2 trillion), minority shareholders can now request the use of cumulative voting without prior changes to the Articles of Incorporation (AOI). This makes it easier for minority shareholders to secure a board seat.
• Independent Audit Committee: The number of Audit Committee members requiring a separate election from the controlling shareholder will be expanded, insulating the committee from potential management influence and enhancing oversight.

3. Tax and Regulatory Adjustments for 2026

While the abolishment of the IRC remains the key access reform, foreign investors must be aware of pending tax changes, which primarily target large entities but may affect individual strategies.

Corporate Tax Increases (Effective Jan. 1, 2026)

Corporate Income Tax rates across all brackets are set to increase by one percentage point, with the top rate rising from 24% to 25%. This is part of a government move to address tax revenue shortfalls and may slightly affect the net earnings of large Korean corporations, but it is unlikely to deter foreign investment given the strong corporate profit outlook.

Taxation on Securities and Dividends

• Securities Transaction Tax (STT): There are proposals to raise the STT (currently 0.15% KOSPI, 0.30% KOSDAQ), which would increase trading costs. Investors should monitor the final legislative package for 2026 to confirm the final rate.
• Dividends from Capital Reserves: A new rule aims to tax dividend distributions made out of capital reserves (e.g., paid-in capital in excess of par value) to the extent they exceed the shareholder’s acquisition cost. This primarily impacts major shareholders but signals a move toward broadening the dividend tax base.
• Tax Treaties: Foreign investors receiving dividends or interest through Omnibus Accounts who wish to claim a reduced tax rate under a Double Taxation Treaty (DTT) must ensure their withholding agent submits the application to the tax authorities within two months from the end of the year in which the income is paid (effective for income paid on or after Jan. 1, 2026).

4. Conclusion: Position for Long-Term Value

The South Korean market in 2026 offers both cyclical upside from the global tech cycle and structural upside from improving corporate governance. The policy focus on eliminating the “Korea Discount” through greater shareholder transparency and rights represents a generational opportunity for foreign investors.

By focusing on strategically vital sectors—Semiconductors, AI Hardware, and Autos—and leveraging the increased minority shareholder rights, investors are well-positioned to capitalize on what many analysts believe will be a continued bull market run.

As always, due to fluid tax legislation and corporate policy updates, consult a tax and financial professional specializing in cross-border Korean investments before executing a strategy.