[Practical Finance] Domestic Stock Market 'Bull Run' Coming... 3 Sectors to Watch

Foreign Investors Return, Undervalued Market Gains Appeal
Rising Interest in Biotech, AI Software, and Shipbuilding Sectors

The KOSPI index recovered to the 2,500 level in 2025, supported by net buying from foreigners and institutions. Photo by Jo Yong-jun

After being labeled the worst-performing stock market worldwide last year, the domestic stock market has been showing an upward trend this year. This is because foreign and institutional investors, who had been selling off heavily amid perceptions that the domestic market was undervalued, are now returning. Experts unanimously agree that sectors such as healthcare and biotech, artificial intelligence (AI) and software, shipbuilding, and defense should be the focus in this year's domestic stock market.

According to the financial investment industry on the 15th, foreigners have reduced their net selling in the domestic stock market since the fourth quarter of last year and have net purchased about 1.2 trillion won as of the 9th of this year. Major institutional investors, such as pension funds, continued net selling from January to October last year but switched to net buying exceeding 2 trillion won per month in November and December. This month, they have maintained an active buying trend, recording net purchases of 396.1 billion won over six trading days.

There are two presumed reasons why foreigners and pension funds are buying domestic stocks. One is the perception that stocks are undervalued due to excessive price declines, and the other is the exchange rate effect. When domestic stock prices fall, the proportion of domestic stock investments in the portfolios of foreigners and pension funds decreases, giving them relatively more capacity to buy domestic stocks. Additionally, following the martial law incident last month, the rise in the exchange rate has created an environment where foreigners can purchase domestic stocks at a cheaper price. Considering this, the prevailing view is that the net buying trend by foreigners and institutions will continue for the time being.

The global stock market sentiment is also favorable to the domestic market. In recent years, emerging and European stock markets have lost investor interest due to the dominance of U.S. tech stocks. However, since Donald Trump, the Republican presidential candidate, was elected U.S. president, investment sentiment toward regions outside the U.S. has recently been recovering.

In fact, smart money such as hedge funds began reducing their investment proportions in U.S. tech stocks from early 2024. Due to the burdensome valuation levels, the U.S. Nasdaq has been stagnant for the past two to three months. Global investors are increasing their interest in markets with less valuation pressure, such as emerging markets and Europe, and net inflows into emerging market and European equity funds have been confirmed since last month.

Kim Hoo-jung, a researcher at Yuanta Securities, said, “Looking at U.S. stock exchange-traded funds (ETFs), the net inflow has been gradually decreasing since October last year,” and predicted, “The trend of reducing investment in U.S. stock-related assets and increasing investment in undervalued domestic stocks will strengthen.”

Experts advise focusing on sectors such as healthcare and biotech, AI and software, and shipbuilding in the domestic stock market, which is expected to experience an upward trend.

First, the healthcare and biotech sectors are expected to gain attention from issues arising at the JP Morgan Healthcare Conference, held until the 16th (local time). This event is the first global IR of the year, where big pharma and biotech companies announce their annual milestones and business development directions. During the event, mergers and acquisitions (M&A) and large-scale licensing deals are also announced. This creates opportunities to improve investment sentiment toward the biotech sector and discover investment ideas for this year.

Kim Seung-min, a researcher at Mirae Asset Securities, said, “Attention should be paid to the earnings announcements of export companies such as Samsung Biologics and SK Biopharm this month,” and analyzed, “Also, interest should be given to whether Alteogen enters clinical trials with its first contract company, whether SK Biopharm introduces its second production line, whether Ligand Bio exports ADC technology, and whether OliX exports siRNA technology.”

Additionally, AI software-related stocks are also noteworthy. Lee Eun-taek, a researcher at KB Securities, said, “Last year, ‘hard AI’ such as semiconductors was in the spotlight, but it has faced difficulties in accelerating growth,” and forecasted, “Investors will now look for industries where AI can be applied, and ‘soft AI’ will gain attention.”

He selected companies related to soft AI, including Ma-eum AI, Eastsoft, and Selvas AI in the human AI sector; Hangul and Computer, Polaris Office in the document-based sector; and Lunit, Deepnoid, and Selvas Healthcare in the medical AI sector as stocks of interest.

Finally, the shipbuilding sector is another area to watch. Domestic shipbuilding gained attention after Trump said in November last year, “The U.S. shipbuilding industry needs help and cooperation from Korea.” Moreover, recent U.S. Department of Defense blacklisting of Chinese shipbuilders and shipowners has raised expectations that the domestic shipbuilding industry could benefit from a positive spillover effect.

Han Young-soo, a researcher at Samsung Securities, analyzed, “There is a possibility that Korean shipbuilders’ relative order competitiveness will expand,” and added, “Due to recent changes in the external environment, there is sufficient potential for a premium on the shipbuilding industry within the Korean stock market to be strengthened.”