Morgan Stanley raises KOSPI target; here are the latest forecasts for 2026

Investing.com - Morgan Stanley has raised its year-end 2026 target for South Korea’s benchmark index, KOSPI, citing stronger earnings momentum, improved domestic demand, and ongoing reform progress.

The firm has increased the baseline scenario target for KOSPI from 5,200 to 6,500 points, raised the optimistic scenario from 6,000 to 7,500 points, and also adjusted the pessimistic scenario upward to 5,000 points. Analyst Joon Seok expects the optimistic scenario to be more likely achieved in the first half of the year, but warns that uncertainties may rise in the second half.

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This upward revision reflects stronger earnings expectations. Morgan Stanley’s revised outlook now assumes approximately 78% EPS growth, up from 60%, mainly supported by the technology sector. The firm has kept the target P/E ratio at around 10 times, consistent with historical averages.

Seok believes the Korean market is in a favorable position, emphasizing that the market is “in the best shape” due to a supercycle driven by AI-powered storage chips supporting chip manufacturers, with broader AI-related themes providing additional backing.

He highlighted several factors behind a more constructive stance, such as “a more optimistic view of chipmakers and related tech stocks,” with AI-driven storage chip dynamics outperforming expectations supporting earnings upgrades.

He wrote, “We expect the AI story focused on the storage chip supercycle to continue driving market gains, but we should also see support from broader AI-related stories.”

Macro and policy conditions are also becoming more favorable. Seok mentioned signs of improved domestic demand, a supportive policy environment, and ongoing capital market reforms, including the passage of the Business Law 3.0.

Meanwhile, the analyst noted that domestic liquidity remains “highly supportive.” Recently, local investors turned net buyers, and brokerage account client margins reached the highest level in the past decade, indicating a large amount of “pending investment funds” in the market.

However, there are still some risks related to the concentration in the tech sector. While earnings expectations remain strong—consensus net profit for 2026 is expected to grow 88% year-over-year—Seok warned that a slowdown in earnings revisions for chipmakers could trigger a correction.

In terms of allocation, Morgan Stanley added healthcare to its overweight portfolio and downgraded non-bank financial stocks to neutral, while maintaining key overweight ratings on chipmakers, defense, power generation, and automotive sectors.

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