The Magnificent 7 may get the headlines. But another market has been winning the race - and it doesn’t have a US passport

For the past few years, it has been hard to look past the Magnificent 7 and the S&P500.

A small group of US technology companies, including Amazon, Apple, Microsoft and Nvidia, have delivered extraordinary growth, dominated market commentary, and become a major driver of global equity returns. For many investors, “international shares” has increasingly become shorthand for owning a handful of big US tech companies.

But market leadership does not stay still forever.

In 2026, South Korea’s KOSPI has emerged as one of the world’s strongest equity markets. Driven by hot demand for AI infrastructure, the index reached an intra-day high of 9,385.59 on 19 June.

That is an extraordinary run. It is also an important reminder of why diversification matters, as the index then fell sharply in July, briefly entering bear-market territory - around 20% below its peak. As of August 31st, the KOSPI was still up 61.8% year to date and more than 114% over the previous 12 months.

The KOSPI’s rise has not happened in isolation. It has been closely tied to the same AI theme that has driven many of the biggest US companies - but through a different part of the supply chain.

While US tech leaders provide dominant exposure to platforms, cloud software, and chip design, South Korea's Samsung Electronics and SK Hynix manufacture the physical high-bandwidth memory (HBM) required to power modern data centres.

For SK Hynix, the turnaround over recent years reflects the strength of this cycle. When ChatGPT launched in late 2022, SK Hynix was navigating the worst memory downturn in over a decade with collapsing DRAM and NAND flash prices, excess inventory, and operating losses. Between 2023 and 2024, the stock roughly tripled off its lows, returning to record profitability following the transformation from a cyclical commodity producer into a critical bottleneck of AI infrastructure.

By the first quarter of 2026, SK Hynix reported revenue of ₩52.6 trillion, up 198% year on year, driving a 482% share price gain over the 12 months to mid-2026 and a multi-year recovery from its 2022 trough.

Together with Samsung Electronics (which gained four- to five-fold from its mid-2025 levels), Samsung and SK Hynix grew to represent more than 50% to 55% of the total KOSPI market capitalisation during the peak of the rally.

This kind of concentration is a natural feature of market-cap-weighted indices when leading companies deliver outsized growth.

We see a version of this in the US becoming increasingly concentrated by a group of large technology companies. Where high returns have elevated Information Technology to almost 40% of the S&P 500 as at as at August 31 2026. 

Technology companies have long generated substantial earnings growth, but when a market becomes heavily concentrated in a single sector or a handful of mega-caps, it can become acutely sensitive to shifts in sentiment and positioning.

The difference in Korea was the sheer scale of concentration in just two companies, combined with high retail participation, which meant normal profit-taking in the memory sector translated into sharp short-term index swings. The underlying demand for advanced technology remained intact, but the market experienced the natural flow that comes with rapid growth phases.

Index classification is also where this story gets specific for Kernel investors. Most index providers, including FTSE Russell and MSCI, still treat Korea as an emerging market. S&P is the exception: classifying Korea as developed and that single classification decision determines where Korea shows up across our range - and it is the reason our exposure looks different to peers using other benchmarks.

In practice, Korea sits in our Global 100 Funds (unhedged & hedged) and the recently launched - Total World Fund, rather than in our Emerging Markets Fund, where many investors would expect to find them.

So, while the KOSPI's run has been one of 2026's biggest stories, only part of a diversified Kernel portfolio would have felt it directly - and, by the same token, only part of it was exposed to the July correction. That is diversification doing its job in both directions.

The Magnificent 7 may still dominate the conversation. But Korea’s remarkable rally shows that investment opportunity is not just confined to the familiar US big-tech names.

Although Korea’s swift correction is just as important as its rise because a market can deliver exceptional returns over a short period and still carry substantial concentration and volatility risk. Another reminder that the winning market one year can be very different from the winning market the next.

So, the goal of diversification is not to predict the next Korea or the next AI winner.

It is to build a portfolio with more than one engine, so that one country, one sector, or one investment them does not determine the outcome for the entire portfolio.