Morgan Stanley has upgraded its outlook on South Korean equities, lifting the rating on the KOSPI index to overweight after a steep selloff wiped out over 30% of its value from the June peak. The bank’s strategists, led by Daniel K Blake, now forecast the KOSPI could surge 36% to reach 9,000 points.
The selloff, described as largely technical, was driven by a wave of deleveraging. Single-stock leveraged ETFs and concentrated index weights had fueled an intense downturn. However, Morgan Stanley believes the market is beyond the halfway point of this unwinding process, with less pressure from hedge funds and retail margin calls.
Key Drivers and Market Volatility
Despite recent volatility, the firm expects the KOSPI to trade within a broad range between 5,500 and 10,500 in the near term. Samsung Electronics and SK Hynix remain central to this support, anchoring valuations. At the same time, sectors such as industrials, defense, and financials are expected to benefit from tailwinds.
The KOSPI recently reversed an 18% rally, slumping 4.4% on Monday as chipmakers Samsung and SK Hynix fell over 7% each. The weakness also rippled into Japan’s Nikkei 225 index, which dropped 2.1%. Meanwhile, US stock futures edged higher after President Trump canceled planned strikes on Iran, easing geopolitical tensions.
Alongside South Korea, Morgan Stanley also boosted Thai equities to overweight citing attractive valuations and growth themes in AI and energy security. Conversely, Australia was downgraded to underweight due to limited upside following recent rate hikes and property tax changes.
This marks a significant shift from Morgan Stanley’s earlier neutral stance on the KOSPI. The firm’s call highlights how the recent “use washout” could open fresh opportunities for investors eyeing AI and tech-driven growth in Asia’s markets.
This material is for informational purposes only and is not financial advice.
