KOSPI Rallies on Chip Sector Recovery; Morgan Stanley Signals Correction Nears End

South Korea's benchmark KOSPI index rebounded sharply on Tuesday, led by a recovery in heavyweight semiconductor stocks that had been hit hard in a recent global technology selloff. The rally was supported by an analyst note from Morgan Stanley, which suggested the market's steep correction could be nearing its conclusion.

Market Rebound

The KOSPI benchmark index surged 4% to 6,775.48 points in early trading, according to Investing.com data. This marks a significant recovery after the index plunged 9% last week, extending a slide that has seen it fall more than 30% from its June peak.

The recovery was fueled by gains in the nation's largest chipmakers. Shares in Samsung Electronics (KS:005930) jumped nearly 7%, while its peer SK Hynix (KS:000660) advanced 5%. Both stocks had faced intense selling pressure amid investor concerns over stretched valuations in the artificial intelligence sector.

Morgan Stanley's Outlook

In a note to clients, Morgan Stanley argued that several indicators suggest the KOSPI may be approaching a bottom. The investment bank noted that the recent correction, while deep, stopped short of a full-blown bear market.

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Morgan Stanley provided the following analysis and forecasts:

• Chipmakers accounted for approximately 70% of the market's capitalization decline since the start of the second half of the year.
• The firm maintained its base-case KOSPI target of 9,000 points.
• It lowered its bear-case target to 6,000 from a previous level, citing slower earnings growth.
• The bank expects the index to trade within a 6,000-9,000 range over the next three to six months.

Context and Investor Strategy

The brokerage pointed out that forward valuations for both the KOSPI and its key chipmakers are near historical lows. However, it cautioned that volatility could persist due to ongoing uncertainty surrounding AI-related capital expenditures and supply chain dynamics.

Morgan Stanley said it continues to favor a "barbell" strategy for investors. This approach involves combining positions in technology leaders with holdings in more defensive sectors to balance risk and potential returns.