Korean Stocks: From Correction to a Healthy Recovery

Morgan Stanley Chief Korea Equity Strategist Joon Seok argues that South Korea's equity market is shifting from a sharp correction toward a more durable recovery, supported by valuation, easing forced selling, and broadening growth. He remains constructive on KOSPI with a 9,000 target by June 2027 and highlights technology and advanced memory as central, while expecting industrials, financials, healthcare, communications, and consumer staples to participate. He also notes quality and financials as potential beneficiaries of the next phase and higher rates. - KOSPI's first-half surge of 101% was followed by a more than 38% drawdown from the peak, but the strategist sees a more durable recovery developing. - Valuation and capitulation indicators suggest the market is in troughing territory. - Forced selling is easing as leveraged ETF assets, margin lending, and hedge fund risk reduction decline. - AI infrastructure and advanced memory keep technology central to the Korea equity story. - Korea's macro backdrop is improving with 3%+ GDP growth, recovering consumption, and tourism above prepandemic levels. - Bank of Korea rate hikes to 3.5% could support financial sector earnings but raise financing costs. - KOSPI target is 9,000 by June 2027, with bull case 10,500 and bear case 5,500. - The next phase should be more balanced across industrials, financials, healthcare, communications, consumer staples, and quality.