KOSPI optimism strong despite volatility; JP Morgan names Korea Asia's top pick

The South Korean stock market, KOSPI, is experiencing extreme volatility, with trading halts triggered multiple times in June due to sharp price drops. Despite this turbulence, global investment banks and domestic brokerages maintain an optimistic outlook, forecasting the KOSPI to surpass 10,000 points within the year.

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Korean stocks are the most preferred market in Asia.

JP Morgan has identified the Korean stock market as its "top preferred market in Asia," setting a 12-month KOSPI target of 12,500. The investment bank attributes this positive outlook to the substantial profits generated by tech companies involved in AI data centers, which are positively impacting businesses, households, and government finances.

Mixo Das, JP Morgan's Head of Korea Equity Strategy, reiterated a "bullish view" on the Korean market, recommending investors "increase their weighting whenever a correction occurs." The base KOSPI target is set at 12,500, with optimistic and pessimistic scenarios at 15,000 and 8,000, respectively. JP Morgan maintains an "Overweight" investment rating for the Korean market.

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We maintain a bullish view on the Korean stock market and recommend increasing weighting whenever a correction occurs.

However, the report acknowledges that volatility is a structural feature of the market, driven by single-stock leveraged ETFs and substantial foreign selling. The assets under management for leveraged ETFs have grown significantly, creating pronounced volatility. Foreign investors offloaded approximately 45 trillion won in stocks during June, with nearly 90% of these sales concentrated in Samsung Electronics and SK Hynix.

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Leveraged ETF AUM has grown to $50 billion, causing very pronounced volatility.

Despite the high structural volatility, large semiconductor companies like Samsung Electronics and SK Hynix are supporting the KOSPI. JP Morgan forecasts a sustained uptrend for the memory semiconductor market. Domestic securities firms also anticipate the KOSPI reaching 10,000 points this year, with some raising their year-end targets. The continued rally, however, hinges on sustained market expectations for AI.

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The net outflow of foreign investors in Korea exceeds the annual outflow records of any Asian market.