Emerging Markets: How AI exports are powering Korea's next investment opportunity

Pendal

June 2026

(2 minutes read time)

IN ONE of the more unusual current developments in emerging markets, South Korea is experiencing a powerful export surge driven by global demand for artificial intelligence infrastructure, yet the Korean won continues to trade close to its weakest levels in decades.

South Korea's latest trade data confirms the strength of the current semiconductor cycle.

Exports reached a record US$87.8 billion in May, rising 53 per cent year-on-year and comfortably exceeding expectations.¹ 

Semiconductor exports increased by 169 per cent.¹ 

The benefits are increasingly extending beyond semiconductors, with non-semiconductor exports gaining momentum and manufacturing activity reaching its strongest level in more than five years. This has transformed Korea's external accounts.

The current account surplus rose from 1.8 per cent of GDP in 2023 to 6.6 per cent in 2025 as semiconductor exports recovered sharply.¹ 

Semiconductor surge tipped to offset energy price drag

The Bank of Korea expects the semiconductor boom to more than offset the economic drag from higher energy prices stemming from tensions in the Middle East.

Under normal circumstances, such a combination of strong exports, rising corporate profitability and large external surpluses would be expected to support a stronger currency.

Instead, the won has continued to weaken. In our view, this reflects the dominance of capital flows over trade flows.

Korean investors have become substantial buyers of overseas assets, particularly US equities.

Domestic savings are increasingly being deployed overseas, while a growing share of the foreign currency revenues generated by Korean exporters are being retained offshore rather than repatriated and converted into won.

As a result, sizeable trade surpluses have coincided with persistent capital outflows.

Vast dollar earnings not being converted back to Korean won

The result is the emergence of "DRAM dollars", analogous to the petrodollars generated by major energy exporters.

Korea's semiconductor sector is generating vast dollar earnings, but an increasing share of those proceeds is not being converted back into won.

At the same time, strong performance in overseas equity markets and a weaker won have reinforced the attractiveness of foreign assets for domestic investors, creating a self-reinforcing cycle of capital outflows.

The won is cheap, but not outrageously so. In its 2025 External Sector Report, the International Monetary Fund (IMF) concluded that Korea's external position in 2024 was broadly consistent with medium-term fundamentals and desirable policies.

In particular, the IMF noted Korea's need to run a large current account surplus in order "to build precautionary savings to meet aging-related needs and an orderly deleveraging of private debt".² 

Since that assessment, the real effective exchange rate has fallen by a further 8 per cent, while semiconductor exports and current account dynamics have strengthened.

How we are positioning

The portfolio remains substantially exposed to the beneficiaries of the AI investment cycle, including Samsung Electronics and SK Hynix, both directly and indirectly.

We remain heavily underweight the rest of the Korean market, where the transmission of semiconductor success into broader earnings growth is less certain.

We also remain underweight the won given the export exposure already embedded within our holdings.

Nevertheless, the combination of a large current account surplus, strong export momentum and increasingly attractive valuation suggests that the medium-term outlook for the Korean currency is becoming progressively more favourable.

Sources: ¹Bloomberg ²IMF

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Pendal MicroCap Opportunities Fund , Pendal Sustainable Australian Fixed Interest Fund - Class R , Pendal Focus Australian Share Fund , Pendal Horizon Sustainable Australian Share Fund , Regnan Credit Impact Trust Fund , Pendal Sustainable Australian Share Fund , Pendal Multi-Asset Target Return Fund , Barrow Hanley Concentrated Global Share Fund , Pendal Active Balanced Fund , Pendal Active Conservative Fund , Pendal Australian Equity Fund , Pendal Australian Long/Short Fund , Pendal Australian Share Fund , Pendal Dynamic Income Fund - Class R , Pendal Fixed Interest Fund , Pendal Global Emerging Markets Opportunities Fund - Wholesale Class , Pendal Global Property Securities Fund , Pendal Government Bond Fund , Pendal Imputation Fund , Pendal MidCap Fund , Pendal Monthly Income Plus Fund , Pendal Property Investment Fund , Pendal Short Term Income Securities Fund , Pendal Smaller Companies Fund

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Emerging markets income equity: the billion-dollar questions

abrdn

June 2026

(Reading time: 5 Mins)

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Hedge Clippings | 10 July 2026

Summary: Housing takes centre stage this week, with fresh ABS approvals data and a rapidly falling price picture landing days apart. Indian Prime Minister Narendra Modi's Melbourne visit delivered a uranium deal which has been stalled for a decade, while offshore the quick military fixes promised in both Iran and Ukraine keep dragging on.

National values post their steepest monthly fall since 2022, and HSBC says an 8% correction is just the beginning

Source: Cotality Home Value Index, via Mortgage Professional Australia, 7 July 2026

Cotality's Home Value Index fell 0.4% nationally in June, the steepest monthly decline since December 2022, with capital city values down 1.3% over the quarter. Sydney (-1.2% for the month, -3.2% for the quarter) and Melbourne (-1.0%, -2.6%) are leading the fall. Sydney's top quartile ($1.8M plus) has shed roughly $90,000 or 5% in three months, and auction clearance rates have sat below 50% for five consecutive weeks.

Domain separately forecasts Sydney down 7% and Melbourne down 8% to June 2027, while Perth, Adelaide and Brisbane keep growing. No doubt there will be further differences on a more granular geographic and suburb basis. Hedge Clippings' own anecdotal evidence from a real estate agent contact operating in Sydney's Elizabeth Bay suggesting achieved prices are already running about 15% below three months ago, with properties taking noticeably longer to sell.

HSBC's Paul Bloxham called the tax reform and the RBA's three 2026 hikes a combination that has "rapidly sapped investor demand," pointing to a peak to trough correction of up to 8%. The issue is that property, as most Australian's largest asset impact consumer confidence and the rest of the economy. CBA now expects GDP growth to slow to 1.5% by year end. Economist Belinda Allen notes the oil shock hit was milder than feared, but a deterioration in the housing market is offsetting that relief.

Source: ABS Building Approvals, released 3 July 2026. Total approvals: 17,019 (+5.5% YoY)

Total dwellings approved fell 1.1% in May to 17,019, per ABS data released 3 July, but the composition tells the real story. ABS head of construction statistics Daniel Rossi attributed the fall entirely to a 10.4% drop in private dwellings excluding houses, which had jumped 4.0% in April.

May's Budget's tax changes will not have not fed through to this data yet, since the CGT and negative gearing reforms only bite from mid-2027 and the SMSF LRBA ban from August. This is still largely a rate and confidence story, not a tax reform one.

The stakes are asymmetric across tenure types. Nationally 66% of households own their home (35% with a mortgage, 31% outright) and 31% rent, per ABS and AIHW data. In Greater Sydney ownership drops to 59% (32% mortgaged, 27% outright) and renting rises to 35%. For the roughly one third of households still paying off a loan, this cycle delivers a rare double hit: elevated repayments and declining home equity at the same time, a combination that weighs directly on consumer confidence since housing remains most Australians' largest asset.

Falling prices help Albo's aspirational first home buyers get a foot on the ladder, but they do not help the roughly 4 million households already on it who are watching equity erode while repayments stay elevated. That asymmetry is the real political and economic tension of this cycle, and no single data release resolves it.

A decade long stalemate ends: Australia will sell uranium to India

Indian Prime Minister Narendra Modi's third visit to Australia, his first stop after Indonesia on a three-nation tour, produced a nuclear cooperation agreement allowing Australian uranium exports to India for "exclusively peaceful purposes," ending a stalemate that persisted despite a 2014 cooperation pact. Albanese framed it as diversifying Australian trade beyond China, still the nation's top partner. Modi linked it to India's target of 100 gigawatts of nuclear capacity by 2047. The two leaders also agreed to deepen defence, critical minerals and space cooperation, including a tracking terminal on the Cocos Keeling Islands, and Modi pushed for an early conclusion to the proposed Comprehensive Economic Cooperation Agreement.

This is a genuine long term positive for the Australian uranium and critical minerals sector, even though the commercial ramp up will take years, not months. However, let's not go into the logic of Australia, with 28% of the world's known uranium resources being happy to export it, but not prepared to use it domestically as a reliable long term power source, unless of course it is on a submarine.

Two quick fixes that still are not fixed

Trump's promised swift resolution in Iran, lunched on 28th of February, has stretched to four and a half months with no final treaty signed despite June's interim memorandum - but in fact with an renewed increase in hostilities. The parallel in Putin's Ukraine short term military exercise launched in 2022 with expectations of a rapid outcome, has instead run more than four years, with Russian forces now facing genuine attrition pressure. For markets, both situations underscore the same lesson: geopolitical resolutions tend to be announced faster than they are actually delivered, and oil and risk asset pricing should build in that lag rather than front run the headline.

Next week: Australia's economic calendar delivers the data that will shape the August RBA call

The RBA's next meeting is not until August 10-11 and is shaping as being critical for Australia's mortgage holders, as well as the RBA's own reputation. Prior to that the board will have the benefit of June's CPI number (due 29th July).

With household equity under pressure from falling prices and mortgage holders squeezed on both sides, the case for diversified exposure beyond direct residential property remains strong. FundMonitors.com tracks 1,075 managed in Australia, helping advisers and HNW investors identify genuine alternatives as capital looks beyond the family home.
 

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