--- title: "Morgan Stanley Upgrades Korean Stocks to \"Overweight\": Deleveraging Nears End, Valuations Highly Attractive" type: "News" locale: "en" url: "https://longbridge.com/en/news/294625559.md" description: "Morgan Stanley has upgraded its rating on the South Korean stock market to \"Overweight,\" with a target price of 9,000 points, implying a 36% upside from current levels. The forward P/E ratio of the KOSPI has fallen to a historic low of 5.7x. Approximately 75% of hedge fund deleveraging is complete, and the size of Leveraged ETFs has shrunk by 70% from their peak, significantly improving the market's position structure. Capital management moves, HBM4 pricing, and the iPhone 18 release cycle are the three core catalysts for the next phase of gains in Korean stocks" datetime: "2026-08-03T01:34:10.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/294625559.md) - [en](https://longbridge.com/en/news/294625559.md) - [zh-HK](https://longbridge.com/zh-HK/news/294625559.md) --- # Morgan Stanley Upgrades Korean Stocks to "Overweight": Deleveraging Nears End, Valuations Highly Attractive Morgan Stanley has upgraded its rating on the South Korean stock market to "Overweight," believing that the previous intense leverage cleanup is nearing its end. With KOSPI valuations falling to historic lows, the bank sees a more attractive entry point for investors. According to Zhuifeng Trading Desk, in its latest Asia Emerging Markets Equity Strategy report, **Morgan Stanley has set the KOSPI target price at 9,000 points, implying approximately 36% upside from current levels.** The report notes that the KOSPI's 12-month forward P/E ratio has dropped to 5.7x, below previous historical lows, indicating that valuations have fully reflected the market's pessimistic expectations regarding the sustainability of memory-driven earnings in 2026. Morgan Stanley believes that the 39% correction in the KOSPI was primarily a technical adjustment rather than a deterioration in fundamentals. As approximately 75% of the hedge fund deleveraging process is complete, and the assets under management (AUM) of Leveraged ETFs related to Samsung Electronics and SK Hynix have shrunk by about 70% from their peaks, the market's position structure has improved significantly. Meanwhile, the report identifies three chip-related catalysts as the core drivers for the next phase of gains in Korean stocks. ## Deleveraging Nears End, Position Structure Becomes Cleaner **Data from Morgan Stanley Prime Brokerage shows that approximately 75% of the deleveraging process by Asian hedge funds is complete.** Total exposure of global hedge funds to South Korea has decreased by 28%, from a peak of 3.8% to 2.7%; net exposure has dropped by 36%, from 8.8% to 5.6%. At the same time, the AUM of Leveraged ETFs linked to Samsung Electronics and SK Hynix plummeted from a peak of approximately $40 billion in June to about $11.8 billion, a drop of roughly 70%. The short gamma of Samsung/SK Hynix Leveraged ETFs also fell from an extreme level of $867 million in late June to $288 million, a decline of 67%. The Morgan Stanley Korea Capitulation Index has dropped to -2.53, its lowest level since 2008 (excluding the -3.1 level touched during the European debt crisis and the pandemic). **The report points out that historically, within 30 trading days after KOSPI realized volatility hits its peak, the market often sees a rebound of 10% to 30%.** At the retail investor level, margin balances have decreased by 14% from their peak in late June, equivalent to a roughly 30% reversion to the post-2020 mean, although absolute levels remain high. The report believes that renewed inflows of foreign capital will be the main driver pushing Korean stocks higher, but market volatility is expected to remain elevated in the short term. ## Valuations Fall Below Historical Lows, Earnings Growth Expectations Remain Strong The current 12-month forward P/E ratio of the KOSPI is 5.7x, ranking in the 2nd percentile of its 10-year history and below previous historical lows. Excluding Samsung Electronics and SK Hynix, the forward P/E ratio of the KOSPI is 10.8x, down approximately 27% from its recent peak of 14.8x. **From an earnings growth perspective, the consensus expectation for MSCI Korea's 2026 earnings per share (EPS) growth is 312%.** More notably, the consensus forecast for the compound annual growth rate (CAGR) of EPS from 2027 to 2028 remains at approximately 20%, higher than the concurrent forecasts for the United States and India. Morgan Stanley believes that at current valuation levels, the market has fully discounted the scenario of a significant decline in memory profits. Even if memory profits consolidate over the next two years, Korean stocks are still poised to outperform other emerging markets. ## Three Chip Catalysts: Capital Management, HBM4 Pricing, and iPhone Cycle Shawn Kim, Head of Asia Technology at Morgan Stanley, highlighted three near-term catalysts for Korean chip stocks in the report. **First, capital expenditure.** Capital management moves by Samsung Electronics and SK Hynix are viewed as the most important near-term catalysts. The market is awaiting specific announcements from both companies regarding their "Value Up" plans and capital returns. While the timing is not yet clear, the expectation itself constitutes a potential catalyst. **Second, HBM4 pricing.** Samsung Electronics recently stated that HBM4 will account for approximately 60% of its total HBM sales by the end of next year. If HBM4 prices reach the market expectation of over $3 per Gb, it will positively catalyze overall DRAM pricing in 2026 and 2027. **Third, the iPhone 18 release cycle.** Mobile devices still account for 30% to 40% of global DRAM demand and 25% to 30% of NAND demand. According to feedback from Apple supply chain members in South Korea (such as LG Innotek), Apple holds a positive outlook on the iPhone 18 cycle, with shipments expected to grow year-over-year by 5% to 10%. The iPhone 18 is scheduled for release in September, with the initial models being the Pro series (including Pro, Pro Max, and foldable screens). 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