Morgan Stanley cuts its outlook for South Korea’s KOSPI! Pessimistic target lowered to 6,000 points: leveraged ETFs drive the rally, leaving the market looking exhausted and sluggish in trading

Morgan Stanley has lowered its pessimistic target level for South Korea’s KOSPI index from 6,500 points to 6,000 points, noting that after leveraged ETFs pulled the market up, trading conditions have already shown clear signs of exhaustion.
(Background: South Korean stocks plunged more than 8% in a single day! KOSPI triggered its seventh circuit breaker of the year, with SK Hynix leading the declines of 13%)
(Additional context: JPMorgan says it could still rise 77%! Lifts its KOSPI target for Korean stocks to 15,000 points: AI hardware cycles keep turning, and Korea remains Asia’s top choice market)

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• Morgan Stanley lowers the pessimistic target: from 6,500 to 6,000 points
• Industry allocation adjustment: telecom services and banking sectors most favored
• On the same day, Citigroup also changes its ratings; Korean equities face dual pressure

On July 20, Morgan Stanley released its latest South Korea market strategy report. It lowered its pessimistic scenario target for the Korea Composite Stock Price Index (KOSPI) from 6,500 points to 6,000 points, and also trimmed the expected volatility range for the 3- to 6-month period to 6,000–9,000 points. Analysts said that the sharp surge in KOSPI early this year has made many investors fearful. Leveraged exchange-traded funds (ETFs) have continued to lift the index and push up the chip sector, and the market has shown obvious signs of trading fatigue.

Morgan Stanley lowers the pessimistic target: 6,500 down to 6,000

In the report, Morgan Stanley said that KOSPI’s rapid rally earlier this year has put investors in a “too high to stay” situation. The firm kept its benchmark scenario target at 9,000 points unchanged, but reduced the 3- to 6-month volatility range from the previously wider band to 6,000–9,000 points.

Today’s South Korean equity market performance also supports Morgan Stanley’s judgment. The KOSPI index fell more than 4% at the open, at one point dropping below 6,500 points, with an intraday decline of 4.72%. Both Samsung Electronics and SK Hynix, the two major bellwether stocks, fell more than 5%, dragging the index lower.

Industry allocation adjustment: telecom services and banking sectors most favored

In its report, Morgan Stanley put forward specific industry allocation recommendations, with the key adjustments as follows:

• Communication services sector: upgraded to an overweight rating
• Banking sector: listed as the top choice
• Information technology, industrial manufacturing, healthcare: secondary allocations

Within the industrial manufacturing sector, Morgan Stanley provided a more detailed ordering: defense and military industry is the top choice, followed by shipbuilding yards, power generation and nuclear power, and overseas engineering contracting.

On the same day, Citigroup also changes its ratings; Korean equities face dual pressure

Morgan Stanley is not the only international investment bank to cool its view on the South Korean stock market. On the same day, Citigroup also downgraded its rating for the South Korean stock market to “neutral,” saying that volatility in market trading conditions has increased.

Morgan Stanley analysts said, “From a mid- to long-term market perspective, market rotation broadening is the general trend. But in the short term, unless reforms lead to a reassessment of valuations, or the industrial manufacturing sector stages a strong rally, it will be difficult for relying on market rotation broadening alone to significantly reverse the direction of the broader market.”

Looking back, on July 13, KOSPI triggered its seventh circuit breaker of the year, with a single-day plunge of more than 8%. It then rebounded by nearly 8% on July 15, reaching 7,400 points. The high volatility of South Korean stocks in the 6,000–7,400 point range also confirms Morgan Stanley’s judgment in lowering the volatility range.

This article is sourced from Golden Finance Express News, compiled and translated by the Dongqu editor Flip