Morgan Stanley has upgraded its investment outlook for the Korean stock market from 'neutral' to 'overweight,' citing significant liquidation of leverage positions following recent market declines.
According to Bloomberg on August 2, the recent drop in the stock market has led to substantial liquidation of leveraged exchange-traded funds (ETFs), margin loans, and hedge fund borrowing positions, creating better entry opportunities for investments in artificial intelligence (AI) and the industrial supercycle.
Morgan Stanley stated, "After the rapid unwinding of leverage positions, the KOSPI has the potential to rise 36% to our target of 9000." The short-term forecast for the KOSPI is set between 5500 and 10500.
The KOSPI experienced significant volatility, surging 18% on the previous trading day before dropping as much as 5.5% during the session. Compared to its peak in June, it has fallen over 30%.
Bloomberg noted that while the Korean stock market has emerged as a key indicator of AI demand in Asia, driven by major players like Samsung Electronics and SK Hynix, the surge in single-stock leveraged ETFs and the index's concentration in a few large-cap stocks have exacerbated the recent declines.
Morgan Stanley assessed that the recent sell-off was primarily influenced by technical factors such as supply and position adjustments, rather than corporate earnings or economic outlooks. The liquidation process of leveraged ETFs, hedge fund borrowing, and individual investor margin loans is already more than halfway complete.
The firm anticipates that Samsung Electronics and SK Hynix will support the lower end of the KOSPI's valuation. It also expects that industrial materials, defense, and financial stocks could benefit from the industrial supercycle and policy changes.
In addition, Morgan Stanley raised its investment outlook for the Thai stock market from 'neutral' to 'overweight,' citing increased foreign direct investment and improved competitiveness, which are creating more investment opportunities. The firm also noted that major companies are likely to benefit from capital expenditures in AI and enhanced energy security.
Conversely, the outlook for the Australian stock market was downgraded from 'neutral' to 'underweight,' as ongoing interest rate hikes and tax reforms reducing incentives for real estate investment have limited further upside potential.
* This article has been translated by AI.
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