South Korea's KOSPI is on the cusp of breaking above its previous record high, stoking expectations for a stock market rally. As Middle East geopolitical risks move into a calmer phase, market focus is concentrating on key leaders including semiconductors with strong earnings momentum.

The KOSPI closed on April 17 down 0.55 percent from the previous session at 6,191.92.

Overnight, Wall Street's S&P 500 and Nasdaq indexes both set fresh record highs. In the domestic market, foreign investors shifted to heavy net selling of about 2 trillion won, prompting a pause in gains.

This was seen as a temporary round of profit-taking ahead of the weekend and after share price declines in global semiconductor equipment makers such as ASML the previous day.

The financial investment industry broadly agrees that investors should prepare for market conditions after a breakout rather than focus on whether the KOSPI will clear its previous peak.

Han Ji-young (한지영), a researcher at Kiwoom Securities, said supply and demand battles around 6,300 would be significant due to fatigue from the KOSPI's extended rally and the burden of a renewed rise in oil prices. She added that a record high had become a question of timing rather than possibility, and that investors should place more weight on opportunities that may follow.

The key force behind any further rise is semiconductors. Combined KOSPI operating profit this year is expected to hit a record 866 trillion won, up 182 percent from a year earlier, with Samsung Electronics and SK Hynix projected to account for 586 trillion won, or 68 percent.

Kim Dong-won (김동원), head of the research division at KB Securities, said the two firms' operating profit is about five times that of TSMC at around 129 trillion won, but their combined market capitalisation remains below TSMC's. He assessed the pair as excessively undervalued relative to earnings, adding it would be appropriate for their combined market capitalisation to rise to at least 3,300 trillion won.

Roh Dong-gil (노동길), a researcher at Shinhan Investment, said semiconductors' 12-month forward earnings per share had been sharply revised up by 50.3 percent, offsetting doubts about earnings. He said semiconductors had moved beyond being a simple high-beta candidate and had become a leading sector capable of restoring both profits and valuation multiples at the same time.

Market experts are stressing portfolio strategies to complement semiconductors as their leadership becomes more entrenched. Considering both earnings and valuation changes, they point to IT hardware, defence and machinery as key alternatives.

Strength in machinery, including power equipment, is standing out. Shinhan Investment said expanding demand for AI data centres is sustaining order momentum, with the order backlog at three domestic power equipment firms - LS Electric, Hyosung Heavy Industries and HD Hyundai Electric - exceeding 30 trillion won.

Buying has also flowed into shipbuilding equipment and cosmetics shares, which posted strong exports in the first quarter and are expected to see improved earnings, as markets actively sort winners from losers.

Brokerages said they expect a fundamentals-driven market to continue for the time being.

Lee Jae-won (이재원), a researcher at Yuanta Securities, said investors should watch for the United States and Iran returning to the negotiating table while focusing on the core factor of corporate earnings. He added that with South Korea entering a full-fledged earnings season next week that includes SK Hynix and financial holding companies, market attention will narrow to sectors with clearly strong results.