Morgan Stanley: The South Korean stock market still has a 36% upside potential after the "flush-out."

Morgan Stanley has raised its rating on South Korean stocks to "overweight." The bank stated that the recent "liquidation of leveraged funds" has created a better entry point for investors to position themselves in the artificial intelligence sector and the industrial supercycle. Led by strategist Daniel K. Blake, the research team noted in their report that after the crowded trades and significant unwinding of leveraged positions, the Korean Composite Index is expected to rise to the target of 9,000 points, with a potential increase of 36%. Previously, brokerage firms rated the South Korean stock market as neutral. Analysts indicated that this round of decline is primarily a "technical adjustment," with the process of deleveraging in leveraged ETFs, hedge fund leverage, and retail financing having surpassed the halfway mark. The Korean Composite Index has fallen about 30% from its peak in June. The market, which was originally a barometer for Asian artificial intelligence demand, has seen significant capital outflow, resulting in a sharp drop in the index. The scale of individual stock leveraged ETFs has surged, and the high concentration of index weight further exacerbated the sell-off. Morgan Stanley predicts that the short-term volatility range for Kospi will be between 5,500 and 10,500 points; Samsung Electronics and SK Hynix will provide valuation support. The bank is also optimistic about individual stocks in the industrial, defense, and financial sectors benefiting from favorable conditions.