Core Viewpoint - Macquarie believes that despite several years of strong growth in the South Korean stock market, its valuation remains attractive, supported by earnings momentum and liquidity [1]. Group 1: Market Outlook - Analysts predict that the KOSPI index could approach 8,000 points by 2026, driven by strong earnings growth, ample liquidity, and favorable government policies [3]. - The market has risen 160% since 2024, yet it is still considered cheap relative to profit growth, with current trading prices estimated at about 9 times the earnings expected in 2026 [4]. Group 2: Earnings and Valuation - The speed of earnings upgrades has outpaced stock price increases, indicating that the current rally is primarily driven by fundamental earnings growth rather than valuation re-rating [5]. - Samsung Electronics and SK Hynix are expected to account for approximately 52% of total net profits in 2026 and about 90% of the growth portion [5]. Group 3: Industry Dynamics - The memory chip sector is facing the "most severe memory supply shortage in history," which is not expected to ease in the next two to three years due to AI demand absorbing supply [6]. - There is significant upside potential for memory prices, which the market has not fully reflected in current earnings forecasts [6]. Group 4: Supportive Policies and Trends - The South Korean government is encouraging a shift of household assets from real estate to stocks, with about 65% of household assets currently allocated to real estate compared to an OECD average of around 50% [6]. - Increased ETF inflows, stock buybacks, and planned repatriation of investment accounts are expected to provide incremental demand for the stock market [7]. Group 5: Sector Ratings - Macquarie maintains an overweight rating on memory, defense, power equipment, biotech/healthcare, shipbuilding, and the South Korean beauty industry [8].