From laggard to leader: Renewed interest in South Korea ignites securities lending activity
09 June 2026
Korea has shifted from a peripheral market to a core opportunity for lenders, says Matt Chessum, executive director, equity and analytic products at S&P Global Market Intelligence, who explores the market鈥檚 recent movements
Image: Shutterstock
Over the past 12 months, South Korea鈥檚 equity market has undergone one of the most dramatic re-ratings in global equities, transforming from a historically discounted market into one of the primary beneficiaries of the global shift toward artificial intelligence infrastructure. For securities lending participants, this has not just been a story of performance, it has been a wholesale shift in market structure, borrow demand, and revenue opportunity.
A market that has decisively re-rated
The scale of Korea鈥檚 equity rally is difficult to ignore. The KOSPI has delivered extraordinary gains over the last year, rising well over 100 per cent in many measures and significantly outperforming most global peers. Even more striking, in 2026 alone, Korean equities surged more than 45 per cent in market-cap terms, lifting total capitalisation to roughly US$4.04 trillion and overtaking the UK鈥檚 FTSE 100 market, which grew by only around 3 per cent to US$3.99 trillion.
This reversal is remarkable given that as recently as late 2024, the UK market was approximately twice the size of Korea鈥檚. In short, capital has rotated quickly, and decisively, toward Korea.
From a valuation perspective, the market has also re-rated upwards. Multiples have expanded as global investors have shifted from viewing Korea as a 鈥渄iscounted emerging market鈥� to a strategic exposure to AI infrastructure, particularly in memory semiconductors.
The drivers: AI, policy, and capital flows
At the core of this rally is a narrow but powerful driver: semiconductors. Samsung Electronics and SK Hynix now represent more than 40 per cent of the KOSPI index, effectively making Korea a proxy for the global AI hardware trade. Surging demand for high-bandwidth memory and AI chips has driven earnings expectations sharply higher, supported by a global build-out of data centre infrastructure.
This concentration of performance has been accompanied by record export growth and a revival in semiconductor shipments, which have been a key contributor to the broader rally. The AI cycle has also triggered a broader reallocation of capital away from mature markets, toward technology-driven economies.
Policy has played a secondary, but meaningful role. The government鈥檚 鈥榁alue-Up鈥� agenda and corporate governance reforms have begun to address the long-standing 鈥楰orea discount鈥� 鈥� which refers to the tendency for South Korean stocks to trade at lower valuations than global peers because of concerns around corporate governance 鈥� supporting higher valuations through improved shareholder returns, transparency, and capital allocation incentives. Foreign investor participation has increased as a result, with global funds re-engaging in the market after years of underweight positioning.
Geopolitical catalysts: Volatility within a structural uptrend
The rally has also unfolded against a complex geopolitical backdrop. US-China trade tensions, semiconductor export controls, and supply chain fragmentation have elevated Korea鈥檚 strategic importance in the global technology ecosystem. At the same time, periods of volatility, such as the US-Iran conflict and global tariff shocks, have triggered sharp corrections, though these have generally been followed by rapid recoveries.
This combination of structural demand (AI) and episodic macro shocks has created a market that is both high-performing and highly reactive, conditions that are particularly relevant for securities lending.
Securities lending: The data story
From a lending perspective, the past year has been defined by significant growth on loan balances and lendable supply, alongside strong revenue trends.
Percentage of market cap on loan: Asia technology and semiconductor sectors
Balances: year-to-date balances have risen to US$40.3 billion in Q1 2026, up 63 per cent year-on-year (YoY) from US$24.8 billion average in 2025.
Lendable supply: lendable inventory has expanded by 140 per cent YoY to US$353 billion in Q1, reflecting both higher valuations and increased institutional participation.
Utilisation: despite the larger pool of assets, utilisation has softened slightly to 4.7 per cent in Q1 when compared to the 2025 average (down 11 per cent YoY), suggesting supply has outpaced incremental borrowing demand.
Q1 2026 revenue surged 687.8 per cent YoY, reaching US$221.6 million as volatility and short demand spiked during the early phase of the rally.
Fee levels also improved materially in Q1, rising to 2.21 per cent versus 0.90 per cent in Q1 2025 (+145 per cent YoY), 2025 average 2.14 per cent.
Where the revenue has concentrated
The borrow demand behind this revenue has been highly concentrated in a set of high-growth, high-volatility names tied to the AI and energy transition themes.
Top revenue contributors in Q1 2026 include:
Hanmi Semiconductor 鈥� US$10.7 million revenue
LG Energy Solution 鈥� US$7.9 million
Ecopro / Ecopro BM 鈥� combined ~US$11.9 million
POSCO Future M Co Ltd 鈥� US$6.0 million
LG H&H 鈥� US$4.6 million
These names highlight two clear themes:
鈥� Semiconductor exposure (AI supply chain trades)
鈥� Battery and industrial technology (EV and clean energy ecosystem)
The impact of the short sale ban reversal
An important structural driver of lending activity over the past 12鈥�18 months has been the removal of South Korea鈥檚 short selling restrictions. During 2024 and the start of 2025, the market operated with limited shorting activity, which suppressed borrow demand, reduced utilisation, and constrained revenue generation despite rising equity prices. However, once the ban was lifted early last year, securities lending activity rebounded sharply.
This release of pent-up demand was clearly visible in the data. Q1 2026 revenue surged nearly 688 per cent YoY, while loan balances increased more than threefold compared to the same period in 2025. The combination of renewed hedge fund participation, re-engagement of relative value strategies, and improved market liquidity drove a step-change in borrowing activity. In effect, the lifting of the ban acted as a catalyst, aligning Korea鈥檚 securities lending market more closely with global norms and unlocking demand that had been sidelined during the restriction period.
Bringing it together
From a securities lending perspective, Korea has shifted from a peripheral market to a core opportunity for lenders. The re-rating, driven by AI, policy reform, and global capital rotation, has created deeper pools of lendable assets and spikes in demand and average fees. In many ways, the lending market now mirrors the equity narrative itself: concentrated, fast-moving, and increasingly tied to global macro and technology cycles.
A market that has decisively re-rated
The scale of Korea鈥檚 equity rally is difficult to ignore. The KOSPI has delivered extraordinary gains over the last year, rising well over 100 per cent in many measures and significantly outperforming most global peers. Even more striking, in 2026 alone, Korean equities surged more than 45 per cent in market-cap terms, lifting total capitalisation to roughly US$4.04 trillion and overtaking the UK鈥檚 FTSE 100 market, which grew by only around 3 per cent to US$3.99 trillion.
This reversal is remarkable given that as recently as late 2024, the UK market was approximately twice the size of Korea鈥檚. In short, capital has rotated quickly, and decisively, toward Korea.
From a valuation perspective, the market has also re-rated upwards. Multiples have expanded as global investors have shifted from viewing Korea as a 鈥渄iscounted emerging market鈥� to a strategic exposure to AI infrastructure, particularly in memory semiconductors.
The drivers: AI, policy, and capital flows
At the core of this rally is a narrow but powerful driver: semiconductors. Samsung Electronics and SK Hynix now represent more than 40 per cent of the KOSPI index, effectively making Korea a proxy for the global AI hardware trade. Surging demand for high-bandwidth memory and AI chips has driven earnings expectations sharply higher, supported by a global build-out of data centre infrastructure.
This concentration of performance has been accompanied by record export growth and a revival in semiconductor shipments, which have been a key contributor to the broader rally. The AI cycle has also triggered a broader reallocation of capital away from mature markets, toward technology-driven economies.
Policy has played a secondary, but meaningful role. The government鈥檚 鈥榁alue-Up鈥� agenda and corporate governance reforms have begun to address the long-standing 鈥楰orea discount鈥� 鈥� which refers to the tendency for South Korean stocks to trade at lower valuations than global peers because of concerns around corporate governance 鈥� supporting higher valuations through improved shareholder returns, transparency, and capital allocation incentives. Foreign investor participation has increased as a result, with global funds re-engaging in the market after years of underweight positioning.
Geopolitical catalysts: Volatility within a structural uptrend
The rally has also unfolded against a complex geopolitical backdrop. US-China trade tensions, semiconductor export controls, and supply chain fragmentation have elevated Korea鈥檚 strategic importance in the global technology ecosystem. At the same time, periods of volatility, such as the US-Iran conflict and global tariff shocks, have triggered sharp corrections, though these have generally been followed by rapid recoveries.
This combination of structural demand (AI) and episodic macro shocks has created a market that is both high-performing and highly reactive, conditions that are particularly relevant for securities lending.
Securities lending: The data story
From a lending perspective, the past year has been defined by significant growth on loan balances and lendable supply, alongside strong revenue trends.
Percentage of market cap on loan: Asia technology and semiconductor sectors
Balances: year-to-date balances have risen to US$40.3 billion in Q1 2026, up 63 per cent year-on-year (YoY) from US$24.8 billion average in 2025.
Lendable supply: lendable inventory has expanded by 140 per cent YoY to US$353 billion in Q1, reflecting both higher valuations and increased institutional participation.
Utilisation: despite the larger pool of assets, utilisation has softened slightly to 4.7 per cent in Q1 when compared to the 2025 average (down 11 per cent YoY), suggesting supply has outpaced incremental borrowing demand.
Q1 2026 revenue surged 687.8 per cent YoY, reaching US$221.6 million as volatility and short demand spiked during the early phase of the rally.
Fee levels also improved materially in Q1, rising to 2.21 per cent versus 0.90 per cent in Q1 2025 (+145 per cent YoY), 2025 average 2.14 per cent.
Where the revenue has concentrated
The borrow demand behind this revenue has been highly concentrated in a set of high-growth, high-volatility names tied to the AI and energy transition themes.
Top revenue contributors in Q1 2026 include:
Hanmi Semiconductor 鈥� US$10.7 million revenue
LG Energy Solution 鈥� US$7.9 million
Ecopro / Ecopro BM 鈥� combined ~US$11.9 million
POSCO Future M Co Ltd 鈥� US$6.0 million
LG H&H 鈥� US$4.6 million
These names highlight two clear themes:
鈥� Semiconductor exposure (AI supply chain trades)
鈥� Battery and industrial technology (EV and clean energy ecosystem)
The impact of the short sale ban reversal
An important structural driver of lending activity over the past 12鈥�18 months has been the removal of South Korea鈥檚 short selling restrictions. During 2024 and the start of 2025, the market operated with limited shorting activity, which suppressed borrow demand, reduced utilisation, and constrained revenue generation despite rising equity prices. However, once the ban was lifted early last year, securities lending activity rebounded sharply.
This release of pent-up demand was clearly visible in the data. Q1 2026 revenue surged nearly 688 per cent YoY, while loan balances increased more than threefold compared to the same period in 2025. The combination of renewed hedge fund participation, re-engagement of relative value strategies, and improved market liquidity drove a step-change in borrowing activity. In effect, the lifting of the ban acted as a catalyst, aligning Korea鈥檚 securities lending market more closely with global norms and unlocking demand that had been sidelined during the restriction period.
Bringing it together
From a securities lending perspective, Korea has shifted from a peripheral market to a core opportunity for lenders. The re-rating, driven by AI, policy reform, and global capital rotation, has created deeper pools of lendable assets and spikes in demand and average fees. In many ways, the lending market now mirrors the equity narrative itself: concentrated, fast-moving, and increasingly tied to global macro and technology cycles.
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