Following one of its sharpest corrections in recent years, major Wall Street institutions are beginning to signal a potential bottom for the South Korean stock market. Citi has reaffirmed its 10,000-point target for the Kospi index, while Morgan Stanley suggests the current sell-off is nearing its end, with both firms agreeing that the recent decline has largely priced in market risks.
On Tuesday, the Kospi index staged a significant rebound of approximately 4%, trading near 6,775 points. Samsung Electronics Co Ltd surged nearly 7% and SK Hynix Inc gained around 5%, leading the recovery. This follows a 9% weekly drop last week, which pushed the cumulative decline from the June 22nd all-time high past 30%, with an additional 4.5% fall on Monday.
Institutional Perspectives on the Market
In a research report issued on Monday, Citi stated that market headwinds have likely peaked, pointing to strong economic fundamentals and a supportive policy mix as key drivers for a potential rebound. The bank characterized the recent drop as a technical correction, presenting a potential buying opportunity.
Morgan Stanley maintained its 9,000-point price target, noting that while the correction has been deep, it has not yet entered bear market territory. The firm highlighted several indicators suggesting the Kospi may be approaching a bottom, with forward valuations for the index and chip stocks nearing historical lows.
Citi's Stance: A Technical Correction
Citi analysts explicitly stated in their report that the recent Kospi pullback, led by South Korean memory chip suppliers, is more of a technical correction driven by broad market profit-taking rather than a signal of deteriorating fundamentals.
Citi maintains its 10,000-point target for the Kospi, implying a potential upside of over 50% from Monday's closing price. The institution believes South Korea's economic fundamentals remain robust, the policy environment is generally favorable, major market headwinds have been released, and current levels offer significant allocation value.
It is worth noting that the South Korean stock market was among the world's best-performing major markets in 2025, a strong trend that continued into early 2026 before reversing sharply due to the aforementioned negative factors.
Morgan Stanley's View: Valuations and Strategy
Morgan Stanley pointed out that despite the depth of the correction, it has not entered a technical bear market. Multiple indicators suggest the Kospi is nearing a bottom. The firm's data shows that since the second half of the year, chip stocks have accounted for roughly 70% of the total market capitalization decline, while the Kospi has fallen 18% over the same period.
Morgan Stanley maintains its 9,000-point Kospi target but has lowered its bear-case scenario target to 6,000 points, citing slowing earnings growth. It has set a 6,000 to 9,000-point range as the expected trading band for the next three to six months.
The firm also cautioned that market volatility may persist due to uncertainties surrounding AI spending trends, capital expenditure cycles of hyperscale cloud service providers, and semiconductor supply dynamics. Consequently, Morgan Stanley continues to recommend a "barbell" investment strategy, combining exposure to leading tech stocks with defensive sectors to hedge against downside risk while positioning for a potential rebound.
Drivers of the Sharp Decline
The trigger for this Kospi downturn was a combination of market concerns over AI spending prospects, risks from the index's high concentration in a few heavyweight stocks, and large-scale speculative activity by domestic retail investors.
Korean retail investors suffered heavy losses in this downturn, particularly those holding single-stock leveraged ETFs for Samsung Electronics and SK Hynix. According to KB Financial Group data, since the launch of single-stock leveraged ETFs on May 27th, Korean retail investors have recorded a net purchase volume of 14 trillion won (approximately $9.4 billion), far exceeding the roughly 2 trillion won in net buying by foreign investors. As the share prices of these two chip giants retreated sharply, these leveraged positions came under immense loss pressure.
Simultaneously, macroeconomic pressures have mounted. The Bank of Korea announced last Thursday a 25 basis point increase in its benchmark interest rate to 2.75%, marking its first rate hike since January 2023. The central bank stated in its announcement that inflation is expected to remain above the 2% target for "a considerable period," with lagging pass-through effects from rising energy prices likely to keep inflation elevated.
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