Morgan Stanley upgrades South Korean stocks to overweight, sees 36% upside

Morgan Stanley upgraded South Korean equities to overweight from equal weight after a steep market selloff, arguing that a largely technical deleveraging had created a better entry point for investors targeting AI and industrial-cycle themes. The bank kept a 9,000 target for the Kospi, implying about 36% upside after the benchmark fell more than 30% from its June peak, and said the unwinding in leveraged ETFs, hedge fund leverage and retail margin positions was already more than half complete. Newer market data show retail leverage retreating further: outstanding margin loans fell to 27.44 trillion won as of August 3 from a record 38.63 trillion won on June 24, while investor deposits dropped to 102.83 trillion won, their lowest level since February 3. Forced liquidations tied to unpaid margin purchases reached 992.7 billion won in July, but the daily figure fell sharply to 22.3 billion won on August 3 after surging late in the month, suggesting the most acute pressure may be easing. Morgan Stanley said much bad news had already been priced in, but added that foreign inflows would likely be crucial for further gains as weaker retail buying power and continued foreign selling remain a headwind.