J.P. Morgan's Take: KOSPI Plunged 28%, But Leverage Unwinding is Mostly Done
Morgan Stanley interprets that the KOSPI's 28% plunge signals significant progress in leverage unwinding. Leveraged ETF assets tied to Korean stocks have dropped from around $50 billion in late June to $26 billion, representing about 75% of the required reduction. Hedge fund deleveraging has also exceeded 50%. While foreign outflows surpassed $110 billion year-to-date, approximately 90% stemmed from sales in just two memory chip stocks: Samsung Electronics and SK Hynix.
The sell-off is attributed more to a crowded trade unwind and forced deleveraging than a fundamental collapse. EPS forecasts for 2026, particularly in tech and industrial sectors linked to AI, remain strongly upwardly revised. However, risks persist. Market volatility remains elevated, regulatory tightening on single-stock leveraged products is underway, and the market's health remains heavily dependent on the sustainability of AI-related demand. Morgan Stanley maintains its overweight stance on Korea with a 12-month KOSPI target of 12,500 points, contingent on continued deleveraging and intact AI fundamentals.
marsbit07/21 03:15
