For years, the easy answer for Australian investors has been to back the home team. The Vanguard Australian Shares Index ETF (ASX: VAS) has delivered an average annual total return of close to 9% over multiple decades. That is hard to argue with.
However, the ASX has always been thin on technology.
And right now, the absence of the AI supply chain in our local index is starting to bite.
That gap is exactly what some investors have been quietly closing.
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A 12-month run that nobody expected
The iShares MSCI South Korea ETF (ASX: IKO) has rallied more than 196% over the past 12 months. The pace has not slowed either – the share price continues to push to fresh record highs as the South Korean share market rips through milestone after milestone.
On Monday, the South Korean benchmark KOSPI surged 4.32% to close at a record 7,822.24 points, its fifth consecutive record high. The broader Korean share market capitalisation crossed 7,000 trillion won (around US$4.75 trillion) for the first time. Five months earlier, that figure sat at 4,000 trillion won.
This is not a small repricing. It is a total rerating of an entire share market.
Memory chips are doing the heavy lifting
Look under the hood and the story becomes obvious. The IKO ETF is heavily concentrated in two companies. SK Hynix accounts for roughly 26% of the fund. Samsung Electronics is another 24%. Together, they are nearly half the portfolio.
Both are memory chip giants. SK Hynix and Samsung control more than 70% of the global DRAM market between them, and Samsung leads the world in NAND flash production. These are the building blocks behind every AI server, every data centre, every cloud platform being constructed at speed right now.
Korean chip exports surged nearly 150% year over year in the first 10 days of May to a record US$8.54 billion.
Another large holding within IKO is Hanwha Aerospace, which makes turbine engines, defence systems, and the surface mount equipment that puts chips onto circuit boards. Industrials, financials, and Hyundai-linked auto stocks make up most of the rest.
In other words – IKO is, in disguise, a leveraged play on the AI build-out and Korea's broader industrial revival.
Valuations were the spark
The other reason capital has poured in is straightforward. Korean tech was relatively "cheap".
While US mega-cap tech has commanded premium multiples through 2024 and 2025, Samsung and SK Hynix traded at single-digit and low-double-digit forward earnings multiples even after this run began. That valuation gap drew global investors searching for cheaper exposure to the same AI thematic that has powered Wall Street to new highs.
Japan has seen a similar phenomenon with the Nikkei. The pattern is consistent. Investors are looking for AI exposure without paying Silicon Valley prices.
A weaker Korean won has also lifted the competitiveness of Korean exporters. That helps earnings, even if it slightly mutes the AUD-denominated returns for Australian holders of IKO.
Foolish takeaway
The risks here are not invisible. The IKO ETF is concentrated. Around half of it sits in semiconductors, and the chart has gone close to parabolic. A pullback in memory pricing, a tariff shock, or a broader AI investment slowdown could hit this fund harder than most.
But step back from this one fund and the bigger point becomes clear. The ASX is a wonderful starting point for any Australian portfolio – the dividends, the franking credits, the familiar names. It also happens to be light on the structural growth themes shaping the next decade. Semiconductors. AI infrastructure. Advanced manufacturing. Defence technology. Very little of it is investable through local shares alone.
Looking offshore is one way to bridge that gap. Korea is one option. Japan is another. The US and parts of Europe each offer their own slice of growth that simply does not exist in our own backyard.
Predicting whether IKO continues its run from here or reverses would be folly. The more durable takeaway is that the themes driving global markets are not always available at home – and the investors willing to look further afield often find the returns that prove it.
