South Korea’s “leverage washout” has created a fresh entry point into the AI trade, according to Morgan Stanley, which lifted its rating on the country’s equities to overweight. The bank now sees the KOSPI climbing 36% to its 9,000 target.

Strategists led by Daniel K Blake described the selloff as mainly technical. The bank previously rated the country as an equal weight.

Samsung and SK Hynix Underpin Morgan Stanley’s KOSPI Call

The KOSPI has exhibited notable volatility. The index tumbled more than 30% from its June peak. A boom in single-stock leveraged exchange-traded funds and concentrated index weightings deepened the rout.  

However, according to the analysts,

“We are past the midpoint of unwinding leveraged ETFs, hedge fund leverage, and retail margin.”

Morgan Stanley sees the index trading in a near-term range of 5,500 to 10,500. It expects Samsung Electronics and SK Hynix to provide valuation support, with tailwinds for industrials, defense, and financials.

The bank also upgraded Thai equities to overweight, citing cheap valuations, AI capex, and energy security themes. Meanwhile, it cut Australia to underweight, seeing limited upside after rate hikes and property tax reforms.

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AI Stocks Whipsaw as KOSPI Extends Losses

Meanwhile, this comes as Korean stocks swing down again. The KOSPI posted a sharp 18% rally on Friday before reversing on Monday.

At press time on Monday, the KOSPI traded at 6,304.80, down 4.41%, or 290.65 points, from Friday’s close of 6,595.45. Samsung Electronics fell 7.43% to 243,000 won, while SK Hynix dropped 7.51% to 1,589,000 won.

The weakness spread to Japan. The Nikkei 225 slipped 2.09% to 63,018.33, with chip equipment makers Advantest and Tokyo Electron down 2.86% and 2.34%.

However, US stock futures moved in the opposite direction. They rose modestly after President Donald Trump said he had canceled planned strikes on Iran.

Whether the deleveraging Morgan Stanley describes has truly run its course may become clearer in the coming weeks.

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Source: BeInCrypto