Morgan Stanley assessed the sharp decline in the South Korean stock market on Tuesday (June 23) as a "temporary breather" rather than a structural breakdown, projecting that the KOSPI could reach 10,500 in a bull-case scenario.
According to the financial investment industry on Wednesday (June 24), Morgan Stanley stated in a report released the previous day that "the KOSPI fell 10% on June 23, led by semiconductor firms and AI-related stocks," attributing the decline to "various factors, including weakness in Micron and unfavorable policy-related comments."
The report noted, "In particular, the KOSPI underperformed comparable markets like the TOPIX (Tokyo Stock Price Index) and the TAIEX (Taiwan Capitalization Weighted Stock Index) due to its high exposure to memory semiconductors and the impact of policy-related news."
It identified "accumulated fatigue from a prolonged rally" as the primary reason for the Korean market's particularly steep decline.
However, the report explained that "the fundamentals of memory semiconductors and related AI stocks remain solid," adding that "these products continue to be a key bottleneck."
"We do not view this correction as the beginning of a bear market," the report stated. "Rather, we see it as a necessary breather while the market awaits clearer signals regarding policy direction and the AI investment narrative."
The report added, "The market is currently focused on the reactions following the shareholder meetings of Micron and Nvidia, as well as the second-quarter earnings reports of Korean semiconductor companies," and reaffirmed a "positive outlook on beneficiary stocks such as semiconductor firms, related holding companies, and peripheral tech stocks."
Morgan Stanley set the base-case target for the KOSPI at 9,000.
It further projected that the index could reach 10,500 in a bull-case scenario and 6,500 in a bear-case scenario.
Market volatility is expected to remain high for the time being.
"Market volatility has entered an expansionary phase," the report noted, pointing out that "the expansion of products and the investor base has a dual nature, providing the positive effect of increased liquidity while simultaneously amplifying market volatility."
Consequently, the report predicted that "following the correction, the KOSPI will likely experience a period of significant fluctuations."
It also advised investors to employ a "barbell strategy" for portfolio construction.
A barbell strategy involves allocating capital to high-growth, high-risk assets on one end and defensive stocks on the other, while maintaining a relatively lower weight in assets with intermediate characteristics.
The report advised, "It is necessary to maintain exposure to growth stocks while expanding investment targets to sectors with relatively stronger defensive characteristics, such as finance, defense, healthcare, and premium consumer goods."
(Photo: Yonhap News)