This Nation's Stock Market Is Outperforming All Others This Year. Should You Invest?

The U.S. stock market is having a solid year by almost any measurement. The S&P 500 index has climbed almost 12% in 2026, following three stellar years, two of which -- 2023 and 2024 -- saw the index soar more than 23%.

So, if your equity portfolio consists only of U.S. stocks, you're probably pretty happy, considering that the average annual performance for the S&P 500 is around 10%.

But the U.S. bull market isn't the only one on the planet. Far from it. Many nations are enjoying a bullish 2026, and markets in many of them are outperforming the U.S. this year, some of them by a lot.

So, which nation has the best-performing stock market? Right now, it's South Korea. The Korea Composite Stock Price Index, or Kospi, is up almost 60% in 2026. And the iShares MSCI South Korea ETF (NYSEMKT: EWY), which tracks the performance of large and mid-cap stocks in the Korean market (analogous to the S&P 500), has soared almost 88% this year. Local market gains don't always translate smoothly to index funds in America, due to currency exchange effects.

The Korean story has changed a bit in 2026

What's driving that incredible performance?

Well, about a year ago, I wrote about South Korea's economy and stock market, and I pointed out that improved corporate governance standards and other reforms were attracting foreign investors and capital into the country, driving its indexes higher.

Image source: Getty Images.

In 2026, however, the success story has changed a bit. This year, the Kospi's impressive performance is mostly due to its semiconductor companies, Samsung and SK Hynix, which account for more than half the Kospi index. Both firms are part of the rarefied group of global companies worth more than $1 trillion.

The question is, can that performance continue through the end of 2026 and into 2027?

Many analysts think so. The Kospi index is now at 6,715. In May, investment bank Goldman Sachs set a 12-month target for it at 9,000, which would be a 34% increase. Goldman's analyst expects earnings for Kospi companies to surge 300% this year, driven by record global shortfalls in memory chips, continued hyperscaler demand, and AI compute.

Korean stocks are relatively cheap, too. The Kospi index currently trades at about 12 times earnings. Compare that to the S&P 500, which has a P/E ratio of around 26. And Goldman says that Korean semiconductor stocks trade at single-digit P/E multiples, which suggests they're undervalued.

The MSCI South Korea ETF is the way to invest in Korean stocks

That's why it might be wise to get in on the Korean success story right now. And the iShares MSCI South Korea ETF is a great way to do it. The ETF currently holds 77 stocks and covers approximately 85% of the Korean equity universe. Its top seven holdings are:

• Samsung Electronics, a huge electronics manufacturer (34.6% of the ETF)
• SK Hynix (NASDAQ: SKHY), a semiconductor manufacturer (26.3%)
• Samsung Electronics Preferred shares (4.3%)
• SK Square, an investment holding company that holds technology assets (2.7%)
• Samsung Electro-Mechanics, a maker of electronic components (2.3%)
• KB Financial Group (NYSE: KB), a bank and financial services firm (1.7%)
• Hyundai Motor, an automobile and heavy machinery manufacturer (1.5%)

The fund clearly has a heavy investment in Samsung Electronics, the largest Korean company by market cap at about $1.2 trillion. Samsung shares have more than doubled so far this year. No wonder: the company is the world's largest manufacturer of memory semiconductors. Like Micron Technology (NASDAQ: MU) and Advanced Micro Devices (NASDAQ: AMD), it is benefiting in a big way from the supercycle in semiconductor memory driven by the AI infrastructure build-out.

To be sure, I would only make a modest investment in Korean stocks (using the iShares MSCI South Korea ETF). Tech stocks are driving the country's indexes higher, though they can be volatile.

Matthew Benjamin has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Micron Technology. The Motley Fool has a disclosure policy.