Morgan Stanley Upgrades South Korea Stocks to Overweight, Sees Kospi at 9,000

Morgan Stanley upgraded South Korean equities to overweight from equal-weight, arguing that the recent market correction has eased valuation pressure enough to make local stocks attractive again.

In a report dated Aug. 3, the bank raised its view on the South Korean stock market after concluding that the recent selloff was a technical correction rather than a sign of weakening earnings or deteriorating corporate fundamentals.

Morgan Stanley said the heavy selling was driven by supply-and-demand factors, including the unwinding of excessive leveraged positions.

It estimated that more than half of leveraged exchange-traded fund positions, hedge fund borrowing and retail margin balances had already been cleared out.

That has significantly reduced valuation pressure on the Kospi and reopened an opportunity for investors to position for a supercycle in AI semiconductors, the bank wrote.

Morgan Stanley also set a 9,000 target for the Kospi. That is about 36% above the index's current level after it slid to 5,000 in late July and then traded sideways in the low-6,000 range.

"Volatility is also a temporary phenomenon tied to the unwinding of excessive leverage, rather than a structural problem in the market," Morgan Stanley said. With much of the deleveraging process complete, corporate earnings and improving conditions in AI semiconductors are poised to lead the market again.

Noh Jeong-dong, Hankyung.com reporter dong2@hankyung.com