Morgan Stanley Upgrades South Korean Equities to Overweight, Targeting 36% Upside
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Morgan Stanley upgraded South Korean equities from equal-weight to overweight, arguing the KOSPI still has 36% upside to its 9,000-point target — a leverage washout has created a better entry point for AI and industrial super-cycle trades.
The KOSPI is down 30% — why is Morgan Stanley buying now?
The KOSPI has fallen roughly 30% from its June high as traders fled Asia's bellwether market for AI demand.
Morgan Stanley calls the sell-off "primarily technical" — a surge in single-stock leveraged ETFs (funds that use borrowed money to amplify moves in individual shares) and excessive index-weight concentration made the decline worse than fundamentals warranted.
This means → the drop was driven by a leverage stampede, not deteriorating earnings. Once forced selling ends, prices can re-anchor to fundamentals.
What backs the claim that the "leverage washout is more than half done"?
Strategist Daniel K Blake's team estimates that leveraged-ETF unwinds, hedge-fund deleveraging, and retail margin calls are all past the halfway mark.
In plain terms = the bulk of forced selling is behind us; the heaviest wave of selling pressure is fading.
Morgan Stanley sets the KOSPI's near-term range at 5,500–10,500, with a target of 9,000.
Where is Morgan Stanley placing its bets?
Valuation anchors: Samsung Electronics and SK Hynix — the two dominant players in Korea's AI hardware chain.
Tailwind sectors: industrials, defense, and financials, expected to ride the industrial super-cycle.
This means → the thesis has two layers: near-term, memory-chip giants repair valuations; medium-term, broader industrial and defense demand takes the relay.
What are Korean regulators doing to prevent another stampede?
Korean regulators have moved to restrict leveraged products, and the government plans to cap retail participation in such instruments.
Measures include limiting position sizes to a set proportion of an investor's total portfolio.
This reflects a regulatory verdict that excessive retail leverage was a structural trigger for this crash — authorities are closing the gap at the institutional level.
How did Morgan Stanley reshuffle the rest of Asia-Pacific?
Thailand: upgraded to overweight — sustained FDI inflows, an earnings inflection at low valuations, and select stocks poised to benefit from AI capex and energy-security themes.
Australia: downgraded to underweight — multiple rate hikes and tax reforms that cut property-investment incentives leave limited upside; the earlier bull case built on energy exposure has been retired.
In plain terms = Morgan Stanley rotated its Asia-Pacific chips: out of Australia, into South Korea and Thailand, betting on the AI cycle and emerging-market valuation repair.
What has to go right for the 9,000-point target to hold?
Whether the KOSPI can push toward 9,000 hinges on two variables: the pace of earnings recovery at Samsung Electronics and SK Hynix, and whether the AI capex cycle continues to deliver.
This means → if memory-chip demand disappoints or global AI investment slows, the 36% upside stays on paper.
The market is in the tail end of deleveraging — short-term swings remain wide — but Morgan Stanley's core call is clear: the worst of the technical selling pressure is past.
Content is for reference only, not financial advice.