Morgan Stanley: After the Leveraged Clean-up in Korean Stocks, There is Still a 36% Upside Potential

Morgan Stanley has raised its rating on South Korean stocks from "neutral" to "overweight," citing recent "deleveraging" that has provided investors with better entry points to engage in artificial intelligence trades and the industrial supercycle theme. Strategists including Daniel K Blake wrote in a report that, with significant liquidations of crowded trades and leveraged positions, the Kospi index still has a 36% upside potential from its target level of 9000 points. On Monday, the index briefly fell by 5.5% after a record rise of 18% last Friday. Analysts noted that the recent sell-off is "mainly due to technical factors," and stated that "the deleveraging process of leveraged ETFs, hedge fund leverage, and retail margin trading is already halfway through." Since its peak in June, the Kospi index has accumulated a decline of over 30%. As a barometer of demand for artificial intelligence in Asia, the South Korean stock market has faced rapid selling by investors, further exacerbated by a surge in individual stock leveraged ETFs and excessive concentration of index weight. Morgan Stanley expects the Kospi index to fluctuate in the short term between 5500 and 10,500 points, and believes that Samsung Electronics and SK Hynix will provide valuation support for the market; stocks in industries such as industrials, defense, and finance are expected to benefit from positive factors.