South Korea’s KOSPI just had the kind of quarter that makes index fund investors feel like geniuses. The benchmark surged roughly 68% in Q2 2026, its best quarterly showing since the rebound from the Asian financial crisis in 1998.

The index climbed from around 5,000 to over 9,000, notching record highs in June. Year-to-date gains have stretched to nearly 100%, making the KOSPI one of the best-performing major indices on the planet this year.

The semiconductor story driving the rally

The engine behind this move isn’t mysterious. Samsung Electronics and SK Hynix, South Korea’s twin pillars of chipmaking, are projected to drive between 52% and 68% of KOSPI profit growth, according to analyst models. Both companies sit at the center of a global feeding frenzy for high-bandwidth memory, or HBM, the specialized chips that power the AI infrastructure buildout.

Samsung and SK Hynix are two of only three companies worldwide capable of manufacturing HBM at scale, giving South Korea an outsized role in what is arguably the defining technology trend of the decade.

Volatility lurking beneath the surface

The KOSPI recorded 20 instances of single-day moves exceeding 5% so far in 2026. For comparison, all of 2025 saw just two such days. That’s a tenfold increase in the frequency of gut-wrenching swings.

The most dramatic came on June 23, when the index plummeted 9.99% in a single session. The catalyst was regulatory action, specifically warnings from South Korean authorities about leveraged ETFs that had become wildly popular among retail traders chasing the rally.

Foreign investors aren’t buying it

Perhaps the most interesting subplot in the KOSPI’s historic quarter is who hasn’t been participating. Foreign investors sold tens of billions of dollars worth of Korean equities through mid-2026, even as the index was posting generational returns.

Much of the selling has been attributed to mechanical rebalancing in global benchmarks. When an index constituent’s weight grows rapidly, passive funds tracking broader portfolios must trim their positions to stay within allocation targets.

Domestic Korean investors have been the primary buyers, fueled by strong sentiment and, in many cases, leveraged products. The rally is increasingly a local phenomenon in terms of capital flows, even though it’s driven by globally significant companies.

The comparison to 1998 is instructive but imperfect. That rebound came from crisis-level valuations after the Asian financial crisis had cratered prices. This rally started from a market that was already trading at reasonable multiples.