In short
Korea’s equity market shifting from a sharp correction toward a more sustainable recovery, driven by valuation, easing forced selling, and improving macro conditions, with a transition from tech-led gains to broader sector participation.
Guest backgrounds
No guest is named. Host is Joon Seok, Morgan Stanley’s Chief Korea Equity Strategist.
Key claims
KOSPI’s forward P/E fell below 5 (lowest since 2004) and the capitulation index dropped to -2.53, suggesting troughing. Forced selling is easing as leveraged single-stock ETFs and margin lending have declined ~70% from June peak; hedge funds have completed ~3/4 of typical risk reduction. Recovery needs broader support beyond tech.
Notable examples
AI-driven memory demand; Morgan Stanley expects large tech platform spending of $805B (2026) and $1.2T (2027). GDP growth >3% for two quarters; tourism surpassing pre-pandemic; BoK policy rate raised to 2.75% with potential to 3.5% by Q1 2027.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Chapters
Tap a time to open that second in VOKorean Stock Market Dynamics
0:19 to 2:14
Exploration of the recent volatility in the Korean stock market and early recovery signs.
“The KOSPI surged 101 % in the first half of 26, then fell more than 38 % from its peak by July 30th.”
Economic Indicators Impacting Recovery
2:14 to 3:06
Discussion on key economic indicators that are influencing the market's recovery.
“The broader Korean economy offers support.”
Future Market Outlook
3:06 to 4:00
The outlook for the Korean stock market and expectations for various sectors.
“The source of market liquidity is changing as well.”
Transcript
Automatic transcript. May contain errors.0:00Welcome to Thoughts on the Market. I'm Joon Seok, Morgan Stanley's Chief Korea Equity Strategist. Today, why Korea's equity market may be moving from a short we've set toward a broader and more sustainable recovery. It's Tuesday, August 18th at 2 p.m. in Seoul. South Korea's stock market has delivered the kind of ride that makes even long-term investors check their phones more often than they would like. The KOSPI surged 101 % in the first half of 26, then fell more than 38 % from its peak by July 30th. But the market now appears to be moving toward a more durable recovery. The first reason is valuation.
0:41Take the KOSPI's forward price-to-earnings ratio, which compares share prices with expected profits over the next year. It fell below five times, its lowest level since 2004. Our capitulation index also dropped to minus 2.53. This index combines market momentum with the breadth of the sell-off, so it helps show whether fear has become widespread. Readings below minus 2 have often marked troughing territory outside the major crises. The second reason is that forced selling appears to be easing. Now, we have seen leverage as a double-edged sword as leverage helped fuel the rally, but it also made the decline sharper as investors were forced to cut positions.
1:26Assets and leveraged single-stock ETFs have fallen about 70 % from the June peak, and margin lending has also come down. Now, hedge funds have completed roughly three-quarters of a typical risk reduction cycle. Put simply, the most intense selling may already be behind us. Still, a healthy recovery needs more than a rebound by the tech sector. Tech remains central because AI infrastructure continues to drive demand for advanced memory. Morgan Stanley Research expects global spending by large tech platforms to reach$805 billion in 26 and$1.2 trillion in 27. That creates a lot of opportunity, but it also keeps markets sensitive to any change in capital spending, chip pricing, or competition.
2:15The broader Korean economy offers support. Real GDP growth has exceeded 3 % for two conservative quarters, up sharply from 1.1 % in 2025. Full-year growth is likely to land in the mid-3 % range, and generally Korea's growth is around 2%. Importantly, the improvement is spreading beyond exports. Consumption is recovering, tourism has surpassed pre-pandemic levels, and the government is targeting 23 million foreign tourists this year. There are trade-offs. Inflation reached 3.2 % in June, and the Bank of Korea raised its policy rate to 2.75%. A measured hiking cycle could take rates to 3.5 % by the first quarter of 27.
2:59Higher rates may help financial sector earnings, but they also raise financing costs for households and businesses. The source of market liquidity is changing as well. Domestic retail investors drove much of the first half rally, but tighter leverage rules mean foreign investors are likely to determine the next leg higher. Corporate governance reforms and better capital management could also encourage broader international participation. We continue to see a path toward a cost-by target of$9 ,000 by June 27, with a bull case of$10 ,500 and a bear case of$5 ,500. The next phase should be steadier and more balanced.
3:40Industrials, financials, healthcare, communications, and consumer staples should also contribute alongside technology. Korea still has room to run, but the stronger signal may be quality, meaning earnings resilience, disciplined capital management, and broader participation. The stock market's initial rally was fueled by speed and concentrated leadership. The next phase will require wider and more durable support. Thanks for listening. If you enjoyed the show, please leave us a review wherever you listen and share thoughts in the market with a friend or colleague today.
4:19Joon Seok:The preceding content is informational only and based on information available when created. It is not an offer or solicitation, nor is it tax or legal advice. It does not consider your financial circumstances and objectives and may not be suitable for you. Thank you.
From the publisher
After a historic rally and a sharp correction, South Korea’s equity market may be approaching a turning point. Our Chief Korea Equity Strategist, Joon Seok, explains that the next cycle will need stronger foundations and more sectors joining in.
Read more insights from Morgan Stanley.
----- Transcript -----
Welcome to Thoughts on the Market. I’m Joon Seok, Morgan Stanley’s Chief Korea Equity Strategist.
Today: Why Korea’s equity market may be moving from a sharp reset toward a broader and more sustainable recovery.
It’s Tuesday, August 18th, at 2pm in Seoul.
South Korea’s stock market has delivered the kind of ride that makes even long-term investors check their phones more often than they would like. The KOSPI surged 101 percent in the first half of 2026, then fell more than 38 percent from its peak by July 30th. But the market now appears to be moving toward a more durable recovery.
The first reason is valuation. Take the KOSPI’s forward price-to-earnings ratio, which compares share prices with expected profits over the next year. It fell below five times, its lowest level since 2004. Our capitulation index also dropped to minus 2.53. This index combines market momentum with the breadth of the sell-off, so it helps show whether fear has become widespread. Readings below minus two have often marked troughing territory outside the major crises.
The second reason is that forced selling appears to be easing. Now, we have seen leverage as a double-edged sword as leverage helped fuel the rally, but it also made the decline sharper as investors were forced to cut positions. Assets in leveraged single-stock ETFs have fallen about 70 percent from their June peak, and margin lending has also come down. Now, hedge funds have completed roughly three quarters of a typical risk-reduction cycle. Put simply, the most intense selling may already be behind us.
Still, a healthier recovery needs more than a rebound by the tech sector. Tech remains central because AI infrastructure continues to drive demand for advanced memory. Morgan Stanley Research expects global spending by large tech platforms to reach 805 billion U.S. dollars in [20]26 and 1.2 trillion dollars in [20]27. That creates a lot of opportunity – but it also keeps markets sensitive to any change in capital spending, chip pricing or competition.
The broader Korean economy offers support. Real GDP growth has exceeded 3 percent for two consecutive quarters, up sharply from 1.1 percent in 2025. Full-year growth is now likely to land in the mid-3 percent range; and generally, Korea’s growth is around 2 percent. Importantly, the improvement is spreading beyond exports. Consumption is recovering, tourism has surpassed pre-pandemic levels, and the government is targeting 23 million foreign tourists this year.
There are trade-offs. Inflation reached 3.2 percent in June, and the Bank of Korea raised its policy rate to 2.75 percent. A measured hiking cycle could take rates to 3.5 percent by the first quarter of 2027. Higher rates may help financial-sector earnings, but they also raise financing costs for households and businesses.
The source of market liquidity is changing as well. Domestic retail investors drove much of the first-half rally, but tighter leverage rules mean foreign investors are likely to determine the next leg higher. Corporate-governance reforms and better capital management could also encourage broader international participation.
We continue to see a path toward a KOSPI target of 9,000 by June 2027, with a bull case of 10,500 and a bear case of 5,500. The next phase should be steadier and more balanced. Industrials, financials, healthcare, communications, and consumer staples should also contribute alongside technology.
Korea still has room to run. But the stronger signal may be quality – meaning earnings resilience, disciplined capital management and broader participation. The stock market’s initial rally was fueled by speed and concentrated leadership. The next phase will require wider and more durable support.
Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.