Morgan Stanley raised its rating on South Korean equities to overweight, signaling a strong buying opportunity after a sharp selloff. The firm believes that recent deleveraging has cleared the way for gains in AI-related tech and industrial sectors.
The KOSPI index took a beating in July, dropping 12.6% intraday amid falling demand for AI chips, ending the day down about 6%. This forced many leveraged investors to exit positions, intensifying the decline.
In a July 22 research note, Morgan Stanley outlined a bullish outlook for South Korean stocks, maintaining a KOSPI target of 9,000, well above current levels. They favor banks, IT, industrials, and healthcare, with telecom services also upgraded to overweight.
The firm recommends a mix of top-tier tech companies and defensive stocks. Within industrials, defense, shipbuilding, and nuclear energy stand out as particularly attractive sectors.
Earlier this year, Morgan Stanley had already raised its end-2026 KOSPI target from 4,500 to 5,200 after better-than-expected earnings and market reforms in South Korea. But the AI chip demand slump pressured the semiconductor-heavy index hard.
The resulting margin calls wiped out fragile leveraged positions, which Morgan Stanley views as a positive, reducing future market vulnerabilities.
South Korea's market movements ripple globally, especially in crypto. The country is a top-three hub for crypto trading volume, meaning its market health directly impacts retail investor appetite.
