Morgan Stanley Expects Korean Stocks to Soar 44% After Their Worst Month Since 2008

Morgan Stanley has upgraded its recommendation on South Korean stocks from “neutral” (in line with the market) to “outperform” (equivalent to a “buy” recommendation), according to Bloomberg. The bank’s analysts believe that the recent decline in the leverage ratio of South Korea’s KOSPI and the unwinding of excessive leveraged positions as a result of the recent large-scale tech sell-off has created an attractive entry point for investors in stocks related to AI and the industrial supercycle.

Since its June highs, South Korea’s KOSPI index has plummeted by more than 30%, with about 22% of that decline occurring in July. Morgan Stanley believes that this sell-off was “primarily technical in nature” and allowed South Korean stocks to cool off and shed excess leverage. Now, the bank’s analysts expect the KOSPI to rise: they have set a target of 9,000 points for the South Korean stock index—which implies a nearly 44% increase in South Korean stocks relative to the close on August 3 (On Monday, the KOSPI fell another 5% and closed at 6,257.45 points).

In the near term, Morgan Stanley forecasts that the KOSPI will fluctuate within a broad range of 5,500 to 10,500 points. According to the bank’s strategists, the market will receive fundamental support from shares of local chipmakers—Samsung (whose shares have fallen 22% over the past month) and SK Hynix (-35% over the past month). In addition, experts expect positive momentum in stocks from South Korea’s industrial, defense, and financial sectors.

Despite a 14 percent rebound on the last trading day of July, last month was the KOSPI’s worst since the 2008 crisis, according to Investing.com. A significant portion of the index consists of stocks from local semiconductor giants, which, amid concerns about massive spending by U.S. Big Tech companies on AI and overvalued ITsector, faced a massive global sell-off last month. On August 3, the sell-off continued in South Korea: Samsung shares fell another 8%, while SK Hynix shares dropped more than 7%.

Before the crash in July, the South Korean stock market was one of the most efficient in the world. In May and June, retail investors poured about 78 trillion won ($54.2 billion) into Korean stocks, according to Investing.com. Investor interest in the local market was driven primarily by the global AI boom, as well as the growing popularity of leveraged exchange-traded funds (ETFs) in Korea. However, due to a sharp spike in volatility, local regulators were forced to intervene in mid-July: they temporarily suspended the listing of new leveraged ETFs tied to individual stocks and promised additional measures to stabilize the markets.

This article was AI-translated and verified by a human editor