International credit rating agency S&P Global Ratings has projected that the semiconductor supercycle driven by increased investment in artificial intelligence (AI) will continue until at least 2028.
However, the agency pointed out that the profit growth of South Korean companies is currently concentrated in a few technology sectors, such as semiconductors.
S&P held a press conference today (June 30) at the Korea Federation of Banks in Jung-gu, Seoul, under the theme of "Rapid Growth of the AI Industry and Potential Credit Risks," where it shared these findings.
The event was attended by Louis Kuijs, Chief Economist for Asia-Pacific at S&P Global Ratings; Kim Eng Tan, Senior Director of Sovereign Ratings for Asia-Pacific; Lee Chang-yoon, Managing Director of Financial Institutions Ratings for Asia-Pacific; Kim Dae-hyun, Managing Director of Financial Institutions Ratings for Asia-Pacific; and Kim Je-yeol, Director of Corporate Ratings for Asia-Pacific.
Director Kim Je-yeol identified "imbalanced growth" as the key keyword for the South Korean corporate sector this year.
"While the overall profit of the South Korean corporate sector has shown strong growth this year, the trends vary significantly by sector," he noted. "Growth is concentrated on the single pillar of semiconductors, while other industries are showing a moderate trend or remain under external pressure."
He explained, "The combined operating profit of the top 100 domestic companies in the first quarter of this year approached 140 trillion won, an explosive increase compared to the same period last year, but most of this growth came from the tech sector. The strong performance of Korean companies is relying on a specific sector."
He categorized the domestic semiconductor and defense industries as the "outperforming" sectors driving this growth.
"We expect the AI supercycle to continue until at least 2028," he said, forecasting that "profits for memory companies such as SK Hynix, Samsung Electronics, and Micron will increase significantly between 2026 and 2027."
However, he added that since significant expansion in semiconductor production capacity could occur from 2028, the balance between supply and demand must be monitored.
Responding to questions from reporters regarding the government's semiconductor investment plan announced yesterday, Director Kim said, "There is not yet high visibility regarding specific plans or timelines for new sites and large-scale investments, so monitoring is necessary. While increased investment is needed, we expect companies to maintain financial discipline when investing, based on past cyclical experiences."
From a macroeconomic perspective, the boom in AI technology exports was presented as a major pillar for the South Korean economy.
"Despite concerns over energy supply instability, inflation, and rising import prices due to conflicts in the Middle East over the past few months, sentiment indicators across the Asian economy have not deteriorated as much as expected," said Senior Director Louis Kuijs. "One of the reasons the energy shock's impact was not significant is the boom in AI-related technology exports."
He added, "Six months ago, we were not optimistic about the South Korean economy, but we have now raised our GDP growth forecast for Korea to 3%," noting that this is slightly higher than market expectations.
This marks a significant upward adjustment from S&P's previous forecast, which had projected South Korea's 2026 economic growth at 1.9% as of last year.
Regarding sovereign credit, the agency assessed that while rising energy prices acted as a downward pressure on Asian countries, the AI export boom largely offset this impact.
However, regarding the weakness of the Korean won, the agency viewed capital inflows into the United States as a primary factor.
"While AI is having a strong impact on the current account, a lot of capital is being invested in the U.S.," said Senior Director Kim Eng Tan. "This is because the U.S. possesses the major companies leading the AI revolution."
He noted that South Korea's increase in foreign stock investments over the past three years has reached approximately $400 billion, which could pose a risk.
"If expectations for the growth potential of these companies weaken, they may fail to support their valuations, leading to a sharp drop in stock prices," he said. "In such a case, it could affect the economy through a decline in the value of investors' portfolios and exchange rate fluctuations."
Regarding the financial sector, S&P assessed that the possibility of stress in the global private credit market spreading to the domestic financial system is low.
"The growth of private credit is not a product of the economic cycle but a structural change," said Managing Director Lee Chang-yoon. "Private credit has filled the void left by banks following the tightening of regulations after the global financial crisis, and this expansionary trend has not wavered even after the pandemic, interest rate hikes, and the U.S. banking crisis."
He added, "As of now, the possibility of stress in the global private credit market spreading to the Korean financial sector or insurance companies as a systemic risk is low. The exposure of domestic insurance companies to private credit is about 2% of total assets, which is limited compared to U.S. and European insurance companies."
Managing Director Kim Dae-hyun also stated, "Even if there is private credit stress in the U.S., the impact on the domestic financial sector will be limited. The exposure of banks and securities firms is minimal relative to their total assets, and the main investment entities are professional institutional investors such as pension funds and mutual aid associations."
Managing Director Kim identified the increase in household credit loans and stock market volatility as short-term risks for the domestic financial sector.
"I am not trying to forecast the stock market, but from a risk perspective, we are noting that volatility has significantly expanded," he said. "In particular, household credit loans have increased significantly since May, and we judge that these funds have flowed into the stock market."
He added, "If a stock market correction occurs due to unexpected external variables in the future, defaults on household credit loans could have a negative impact on the financial sector. If combined with selling by foreign investors, there is a risk that the exchange rate could rise sharply in the short term."
(Photo: Yonhap News)