In-Depth Analysis of the Impact of South Korea's Q4 Economic Stagnation on Asian Supply Chains and Regional Stock Markets

Based on the latest data and market information I have collected, I will provide you with a systematic analysis of the impact of South Korea’s economic stagnation on Asian supply chains and regional stock markets.

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According to the latest data, South Korea’s Q4 2024 quarter-on-quarter economic growth slowed sharply. Data from the Bank of Korea shows that the quarter-on-quarter GDP growth rate is expected to drop from 1.3% in Q3 to approximately 0.4% in Q4, mainly dragged down by the following factors [1]:

Indicator	Q3	Q4 (Estimate)	Change
Quarter-on-quarter GDP Growth	1.3%	0.4%	-0.9pp
Equipment Investment	-	Remained Sluggish	-
Construction Investment	-	Down 9.5%	-
Domestic Demand	Weak	Further Slowdown	-
Inventory Change	-0.22pp	Dragged Down GDP	-

The biggest challenge facing the South Korean economy is sluggish domestic demand:

• Sluggish Consumption
  : Momentum in consumption weakened significantly after the government’s cash subsidy program ended [2]
• Weak Residential Investment
  : Relatively high interest rates have suppressed real estate and investment activities [3]
• Declining Corporate Investment Willingness
  : Equipment investment has shown no significant improvement, and investment willingness in the manufacturing sector remains low

The downturn in the construction industry is a major drag on the South Korean economy:

• Construction investment fell 9.5% year-on-year in 2025 [4]
• The prolonged downturn in the construction industry has led to a tight job market
• Rising unemployment in the construction and related industries has exacerbated downward economic pressure

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South Korea occupies a pivotal position in the global semiconductor supply chain:

Industry	Global Position	2025 Performance
Memory Chips (DRAM)	Global No.1	44% Price Increase (Forecast) [5]
NAND Flash Memory	Top Global Tier	61% Price Increase (Forecast) [5]
HBM (High Bandwidth Memory)	Top 2 Globally	Growth Driven by AI Demand [6]
Semiconductor Equipment	Top 3 in Global Investment Scale	Continuous Expansion

:

• Samsung Electronics
  : Q4 2025 operating profit hit an all-time high, exceeding KRW 20 trillion in a single quarter for the first time [7]
• SK Hynix
  : Stock price surged nearly 250% cumulatively in 2025, becoming the biggest beneficiary of AI memory chips [8]

South Korea’s economic stagnation has multi-layered impacts on Asian supply chains:

The slowdown in South Korea’s manufacturing sector has direct impacts on the following regions:

• Japan
  : Semiconductor equipment exports may decrease, and equipment shipments will be affected [9]
• Southeast Asia
  : Export orders for electronic components decreased
• China
  : Exports of some intermediate products declined

• Vietnam
  : The electronic assembly industry relies on South Korean component supplies and may be affected
• India
  : The mobile phone manufacturing industry chain was affected
• Malaysia
  : Demand for semiconductor packaging and testing may decline

Despite the overall economic slowdown, the AI boom has injected strong momentum into South Korea’s semiconductor supply chain:

Product Category	2025 Export Value	YoY Growth Rate
Semiconductors (Overall)	USD 173.4 billion	+22.2% [10]
Memory Chips	Core Growth Driver	Double-Digit Growth
Automobiles	USD 72 billion	+1.7% (Record)
Ships	USD 32 billion	+24.9%

:

1. Demand for AI-related chips is decoupled from traditional cycles
2. Enterprise-level AI capital expenditure has become a new growth engine
3. The memory chip “super cycle” is expected to last until 2027 [11]

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:

Time Period	KOSPI Increase	Driving Factors
Full Year 2025	70%+	AI Boom, Corporate Reforms [8]
Q4 2025	21.7%	Strong Semiconductor Demand [12]
Early 2026	4.36%	Technology Stocks Extended Their Strength

:

1. Semiconductor/AI Sector
   • SK Hynix rose nearly 250%, Samsung rose 120% [8]
   • LG Energy Solution was driven by demand for energy storage in AI servers, with its stock price rising 50% at one point

2. Defense and Shipbuilding
   • Hanwha Aerospace’s stock price surged 200% [8]
   • HD Hyundai Heavy Industries’ stock price rose nearly 120%
   • Supported by expectations of increased defense spending in Western countries

3. Policy Benefits
   • The “Corporate Value Enhancement Program” narrowed the “Korea Discount” [13]
   • The Lee Jae-myung administration launched three major initiatives: corporate governance reform, consumption stimulus, and AI investment

Market	2025 Performance	Main Characteristics
South Korea KOSPI	70%+	Driven by AI and Semiconductors
Japan Nikkei 225	30%	Policy Stimulus, Technology Stocks
Taiwan Weighted Index	Hit a New High	Strong AI Chip Exports
Hong Kong Stocks/A-Shares	Minor Pullback	Slow Domestic Demand Recovery [12]

• Beneficiary Sectors
  : Semiconductor equipment, AI chips, memory chips
• Pressured Sectors
  : Consumer electronics, traditional manufacturing
• Capital Flow
  : Technology-related capital continued to flow into South Korean and Taiwanese markets [14]

Industry	Recommendation Rationale	Risk Warning
Semiconductor/AI	AI Super Cycle Continues	High Valuation
Shipbuilding/Defense	Driven by Geopolitics	Cyclical Volatility
Finance	Low Valuation, Policy Support	Interest Rate Risk

:

• The KOSPI’s expected price-to-book ratio is 1.3x, lower than the emerging market average of 1.9x [12]
• Target Points: 4,650-4,950 (based on 1.4-1.5x price-to-book ratio)
• There is still upside potential; it is recommended to accumulate on dips

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:

• Remained at a relatively high level in 2025 (approximately KRW 1,450-1,470 per USD) [15]
• The high exchange rate brought imported inflation pressure
• Compressed the profits of export-oriented enterprises

:

High KRW Exchange Rate → Decline in Export Competitiveness → Reduction in Corporate Profits → Decrease in Consumption → Economic Slowdown

• In 2024, there was a net outflow of over USD 30 billion for 9 consecutive months [8]
• Capital flowed back after policy stabilized in 2025
• The technology sector’s attractiveness increased

• Changes in overseas stock holdings by South Korean investors reflect exchange rate expectations
• Allocation to USD assets is affected by exchange rate fluctuations

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:

Risk Type	Performance	Transmission Path
Consumption Downgrade	Demand fell after the effect of consumption vouchers faded	Consumption → Corporate Revenue → Employment
Sluggish Investment	Long-term contraction in construction investment	Investment → Employment → Consumption
Trade Dependence	Export fluctuations affect economic stability	Exports → GDP Growth
Industrial Concentration	Over-reliance on semiconductors	Amplified Cyclical Volatility

(Data from the Asian Development Bank)

Region	2025	2026 (Forecast)
Developing Asia-Pacific Economies	4.5%	4.6% [16]
Southeast Asia	4.5%	4.4%
South Asia	Fast Growth	Inflationary Pressure

Economy	2025 Growth Characteristics	Risk Factors
South Korea	~1%	Automobile Tariffs, Weak Domestic Demand [2]
Taiwan	High Growth	Semiconductor Cyclicality
Hong Kong	Influenced by China	Weak Real Estate

• The U.S. imposed a 15% tariff on South Korean automobiles [17]
• Expectations of semiconductor tariffs led to advance stockpiling in supply chains
• Japan and Europe received low tariff treatment, relatively enhancing their competitiveness

• Supply chains shifted from “efficiency first” to “security first”
• Restructuring of regional industrial chains accelerated
• Differences in countries’ dependence on policy adjustments amplified divergence in returns

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: The 2026 GDP growth target is 2%, an upward revision of 0.2 percentage points from the previous forecast [4]

:

1. Semiconductor Exports
   : Expected to grow 4.2%, hitting a new high
2. AI Investment
   : The government plans to triple AI spending
3. Construction Investment
   : Expected to rebound 2.4%, ending a long-term contraction
4. Consumption Recovery
   : Expected to grow 1.7%

:

• National Growth Fund: KRW 30 trillion to support strategic industries
• Korean Sovereign Wealth Fund: KRW 20 trillion invested in high technology
• Consumption stimulus policies extended

:

Factor	Impact Assessment
AI Boom	Positive Driver (+)
Trade Frictions	Negative Pressure (-)
Monetary Policy	Overall Loose (+)
Fiscal Policy	Active Expansion (+)
Supply Chain Restructuring	Neutral (~)

: “Resilience” remains the keyword for the Asian economy in 2026, but differentiation will intensify

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Theme	Target Type	Rationale
AI Computing Infrastructure	Semiconductors, Memory Chips	AI Super Cycle Continues
Defense and Military Industry	South Korean Defense Stocks	Driven by Geopolitics
Shipbuilding and Maritime Shipping	Shipping, Shipbuilding	Trade Recovery
Value Reassessment	South Korean Stocks Overall	Valuation Discount Recovery

• Traditional Manufacturing: Weak Demand, Overcapacity
• Real Estate-Related: Prolonged Slump in Construction Investment
• Consumer Staples: Slow Domestic Demand Recovery

Risk Type	Specific Performance	Impact Level
Policy Risk	Tariffs, Sanctions	High
Exchange Rate Risk	KRW Volatility	Medium-High
Cyclical Risk	Semiconductor Downturn	Medium
Geopolitical Risk	Trade Frictions	High
Liquidity Risk	Foreign Capital Withdrawal	Medium

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South Korea’s Q4 2024 economic stagnation mainly stemmed from weak domestic demand and a deep contraction in construction investment, but this is not entirely negative. The AI-driven semiconductor super cycle provided important support for the South Korean economy, allowing it to maintain export competitiveness amid global trade frictions.

:

• The semiconductor supply chain remains resilient, with strong demand for AI-related products
• The traditional manufacturing supply chain is under pressure
• Restructuring of regional industrial chains accelerated

:

• South Korea’s KOSPI delivered a strong performance, with technology stocks leading the gains
• Asian stock markets saw intensified differentiation, with the technology sector benefiting overall
• There is still room for valuation recovery; it is recommended to pay attention to allocation opportunities in South Korean stocks

:

• South Korea’s weak domestic demand may reflect a regional consumption downgrade trend
• Export-oriented economies face structural challenges
• Policy coordination and structural reforms will become key variables

: South Korea’s economic stagnation is a microcosm of regional economic differentiation, rather than a signal of a full-scale recession. Driven by both the AI boom and policy stimulus, the Asian economy still has the foundation to maintain a relatively leading position, but investors need to closely monitor risks brought by changes in trade policies and exchange rate fluctuations.

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[1] Hellenic Shipping News - “Asia week ahead: Rate decisions in China, Japan, Indonesia and key data from China, Taiwan and South Korea” (https://www.hellenicshippingnews.com/asia-week-ahead-rate-decisions-in-china-japan-indonesia-and-key-data-from-china-taiwan-and-south-korea/)

[2] Japan Research Institute - “Asia Monthly December 2025” (https://www.jri.co.jp/en/MediaLibrary/file/english/periodical/asia/2025/12/contents.pdf)

[3] CLSA - “Resilient Markets Amid AI Bubble Doubts” (https://www.citics.com.hk/upload/files/report/20251223122240_6370.pdf)

[4] Korea Herald - “Korea aims for 2% growth in 2026, betting on chips” (https://www.koreaherald.com/article/10652488)

[5] China Securities - “DRAM Quotations Continue to Rise, TSMC’s Q4 Revenue Grew Beyond Expectations” (https://pdf.dfcfw.com/pdf/H3_AP202601151817045806_1.pdf)

[6] Morgan Stanley - Analysis of the AI-Driven Storage Industry Super Cycle

[7] Korea Bizwire - “Samsung Electronics Boosts Bonuses for Chip Unit as Memory Earnings Rebound” (http://koreabizwire.com/samsung-electronics-boosts-bonuses-for-chip-unit-as-memory-earnings-rebound/342255)

[8] Investing.com - “Year-End Review of Non-U.S. Stock Markets: Rate Cuts + AI Double Buffs Propelled Multiple Country Indices to Records” (https://hk.investing.com/news/stock-market-news/article-1248366)

[9] China Chamber of Commerce for Import and Export of Machinery and Electronic Products - “China’s Mechanical and Electrical Product Exceeded USD 2.3 Trillion in 2025” (https://www.cccme.org.cn/news/details.aspx?id=C7E8547655CC36CAD5260211DC4C9F9D)

[10] Economic Times - “South Korea exports top $700 bn in 2025, amid AI, chips boom” (https://m.economictimes.com/tech/technology/south-korea-exports-top-700-bn-in-2025-amid-ai-chips-boom/articleshow/126283547.cms)

[11] MacroMicro - “MM Quickie” (https://sc.macromicro.me/quickie)

[12] Sina Finance - “Moving Forward Amid Global Economic Differentiation” (https://finance.sina.com.cn/roll/2026-01-06/doc-inhfiqwv7423984.shtml)

[13] Standard Chartered Investment Strategy Report

[14] MNI Market News - “MNI Asia Pac Weekly Macro Wrap” (https://media.marketnews.com/weekly_macro_round_up_jan_16_2026_df0c461ee7.pdf)

[15] Financial Media - KRW Exchange Rate Data (https://static-web.stcn.com/upload/wechat/20251224/f23EOWYFfgFL6FKdKFPm5PSGqQqXOJhHSpoYyX58Xib0g5AMykd3DUNmict7SOwNB4Epia0Fx2E9nLhBt2JDiawNDA.png)

[16] Asian Development Bank - “Asian Development Outlook” (Updated December 2025)

[17] Ming Pao - “U.S. Imposes 15% Tariff on South Korea, Approves Trillion-Dollar Shipbuilding Investment” (https://news.mingpao.com/ins/)