South Korea holds its legislative election on April 10, 2024, and the future for the country’s technology sector will likely provide important discourse regardless of the outcome.
The technology industry—particularly semiconductors and technology components—is a core driver of South Korea’s economic growth. Some parties even estimate that the industry represents as much as 7% of the nation's real gross domestic product (GDP).1 The MSCI South Korea Index reflects this importance, as information technology (IT) companies comprise 48% of the index2—more than triple the next-largest sector (see Exhibit 1 below).3
Exhibit 1: South Korea’s Technology Sector
Source: FactSet. As of March 28, 2024. The MSCI Korea Index is designed to measure the performance of the large- and mid-cap segments of the South Korean market. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges.
The country is home to several world-leading companies in this sector. Semiconductors in particular are an area of focus. While Asia dominates globally, the incumbent leaders are facing increased competition from other nations such as the United States, Germany and Japan—all of which have increased their investment into domestic semiconductor production, in order to reduce dependence on Asian giants.
Given their competitive position in this space, South Korea is also looking at ways to support this industry and retain global leadership.
The South Korean government has been promoting a “Value Up” program which incentivizes companies to return more cash to shareholders. While both political parties leading in the latest polls are supportive of the Value Up program to varying levels, in our view, the technology sector is well positioned to benefit from it. For example, a Korea-based, global leader in semiconductor memory chips (and household name) already has this mindset and a robust cash balance. We anticipate that its existing approach to returning cash to shareholders and its ability to do so will allow the company to benefit from Value Up.
As we approach the election, we would be surprised if there is anything but support for this industry.
Endnotes
- Source: “Semiconductors power South Korea’s economic growth.” The Banker. February 28, 2022.
- The MSCI Korea Index is designed to measure the performance of the large- and mid-cap segments of the South Korean market. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges.
- Source: FactSet. As of March 28, 2024. Next largest sector is Industrials with a weight of 13%.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. Past performance is no guarantee of future results.
Equity securities are subject to price fluctuation and possible loss of principal.
International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.