Global investment bank JPMorgan has expressed optimism about the South Korean stock market, citing the expansion of artificial intelligence (AI) investments and a strong memory chip market. The bank raised its KOSPI target, suggesting the possibility of a "10,000-point era" for the index.
On May 11, JPMorgan released its "Korea Equity Strategy" report, adjusting its target scenarios for the KOSPI to 9,000, 10,000, and 6,000 points for basic, bullish, and bearish scenarios, respectively, all higher than previous forecasts.
The report noted, "In the past two to three months, signals have emerged that alleviate concerns about AI monetization," adding that advancements in model performance, increased consumption of agentic tokens, a stabilization in token prices, and new funding have significantly boosted the growth trajectory of AI capital expenditures.
JPMorgan also highlighted that prices for AI-related hardware continue to rise, stating, "The South Korean stock market is highly exposed to themes of AI, security, and resilience."
The bank specifically pointed to the memory chip sector, suggesting a prolonged supercycle. It explained that memory stocks currently account for about 50% of the KOSPI's market capitalization and have driven approximately 70% of the index's gains since the beginning of the year.
"AI demand continues to outstrip supply, and inventory levels remain tight," the report stated, noting that high-bandwidth memory (HBM) supply is tied to multi-quarter price and volume contracts, indicating a significant risk of supply shortages. It also mentioned that clients are preemptively advancing demand projections to 2027 due to concerns over supply shortages.
JPMorgan anticipates that the memory market's upward cycle will likely continue into 2027-2028.
The report emphasized that the rise in the domestic stock market is not limited to semiconductors. "The KOSPI's performance, excluding Samsung Electronics and SK Hynix, has significantly outperformed regional benchmarks," it stated, noting that earnings forecasts are also improving for sectors related to industrial materials.
Regarding bank stocks, JPMorgan observed positive earnings momentum based on recovering net interest margins, increased fee income, and stable loan loss provisions.
Corporate governance improvements were also identified as a key factor in the reevaluation of the South Korean stock market. JPMorgan stated, "The trend of improving corporate governance is an important foundation for attracting foreign and domestic investor capital, particularly as it will provide significant momentum for the reevaluation of holding companies."
However, the bank raised concerns about potential short-term cooling due to overheating pressures. It noted, "The market breadth is narrowing, and technical pressures are increasing, as indicated by rising relative strength index (RSI) spreads and volatility indices (VKOSPI)." Nevertheless, it advised that any corrections should be viewed as buying opportunities.
JPMorgan also expressed optimism about the potential for additional capital inflows from emerging market and Asian investors. The report stated, "In the second quarter, hedge funds have aggressively increased their exposure to South Korea," while noting that active long-only investors have slowed their selling after significant sell-offs in the first quarter, although large capital inflows into the spot market have yet to be confirmed.
It added that emerging market and Asian investors are estimated to be in a state of overbuying Samsung Electronics and SK Hynix by about 70 basis points, but considering the expected earnings improvements, this remains a light position. The report estimates that the earnings per share (EPS) for Samsung Electronics and SK Hynix could be four to five times higher than last year.
JPMorgan identified promising investment opportunities in AI-themed memory sectors, holding companies and insurance stocks benefiting from governance improvements, banks, automotive, and telecommunications stocks that could benefit from tax reforms, and securities firms expected to gain from increased trading volumes. Long-term industrial themes include defense, power equipment, robotics, nuclear power, space, and shipbuilding.
Top KOSPI picks include Samsung Electronics, SK Hynix, Hyundai Motor, Samsung C&T, Samsung Electro-Mechanics, Hanwha Aerospace, Samsung Life Insurance, HD Hyundai Electric, Shinhan Financial Group, SK, HD Korea Shipbuilding & Offshore Engineering, LG Chem, APR, and Isu Petasys.
Conversely, POSCO Future M, Hyundai Marine & Fire Insurance, and Kakao were mentioned as less favored stocks.
* This article has been translated by AI.
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