Morgan Chase: The Korean stock market deleveraging process is 75 per cent complete and continues to maintain the “over-match” rating

MORGAN CHASE NOTED THAT FORCED DELEVERAGING, DRIVEN BY LEVERAGE ETF, WAS THE MAIN REASON FOR THE RECENT COLLAPSE OF KOREA ' S KOSPI INDEX. THE AGENCY ANALYSED THAT THE LIQUIDITY OF LEVERAGED FUNDS, RATHER THAN THE PROFITABILITY OF ENTERPRISES OR THE DETERIORATION OF FUNDAMENTALS, MAGNIFIES MARKET VOLATILITY. THE LEVERAGE ETF ASSETS ARE NOW EXPECTED TO SHRINK TO APPROXIMATELY $26 BILLION, AND THE DELEVERAGING PROCESS IS NOW ABOUT 75 PER CENT COMPLETE. THE BUSINESS FUNDAMENTALS OF THE KOREAN MARKET ARE STILL ROBUST, BUT STRONG DELEVERAGING PRESSURES ARE STALLING STOCK PRICES. THE AGENCY PREDICTS THAT STRONGER REGULATORY MEASURES SUCH AS INCREASED BASE DEPOSIT BOND REQUIREMENTS AND A MORATORIUM ON THE NEW LISTING OF SINGLE-STOCK LEVERAGE ETFS WILL FURTHER FACILITATE THE DELEVERAGING PROCESS. THE REPORT ALSO ASSESSES THAT HEDGE FUNDS ARE ALSO DECLINING RAPIDLY. ACCORDING TO CHASE MORGAN, THE SIZE OF THE POSITION UNDER HEDGE FUND MANAGEMENT HAS BEEN REDUCED FROM MORE THAN 5.5 TIMES THE NET ASSETS TO LESS THAN FOUR TIMES, AND IT IS ESTIMATED THAT THE DELEVERAGING IS OVER HALF COMPLETE. FOREIGN EQUITY NET SALES TO SOUTH KOREA ARE EXPECTED TO EXCEED $110 BILLION THIS YEAR, BUT ABOUT 90 PER CENT OF THEM ARE CONCENTRATED IN SEMICONDUCTOR STOCKS, WHILE THE PRESSURE ON FOREIGN INVESTMENT TO SELL IS GRADUALLY EASING WITH THE RECENT DECLINE IN STOCK WEIGHTS. THE BANK ALSO REMAINS OPTIMISTIC ABOUT THE MEDIUM- AND LONG-TERM PROSPECTS. INVESTMENTS IN AI AND DATA CENTRES REMAINED ROBUST, THE SLOW DEMAND FOR THE STORAGE OF CHIPS HAD NOT YET BEEN CONFIRMED, AND IMPROVEMENTS IN THE PROFITABILITY OF INDUSTRIAL, FINANCIAL AND CONSUMER BOARDS, AS WELL AS IN THE GOVERNANCE STRUCTURE OF ENTERPRISES, HAD ALSO BEEN BENEFICIAL TO THE KOREAN STOCK MARKET. MORGAN CHASE MAINTAINED ITS “SUPER-MATCHED” RATING ON THE KOREAN STOCK MARKET AND EXPECTED THE KOSPI INDEX TO HAVE A 12-MONTH TARGET PRICE OF 12,500 POINTS, CONSISTENT WITH THE PREVIOUS ONE. THE BASELINE SCENARIO TARGET IS 12,500 POINTS, THE CATTLE MARKET IS 15,000 POINTS AND THE BEAR MARKET IS 8,000 POINTS. KIM XIAN