Morgan Stanley has revised up its year-end 2026 target for South Korea's KOSPI index, pointing to a stronger earnings trajectory, firmer domestic demand indicators and continued policy and capital-market reform as the foundation for a more constructive market view.
In the bank's updated scenarios, the base-case KOSPI target is now 6,500, increased from 5,200 previously. The bull-case was raised to 7,500 from 6,000, and even the bear-case level was lifted to 5,000. Analyst Joon Seok flagged that the upside scenario appears "more likely to be reached" in the first half of the year, but he cautioned that uncertainty could increase in the second half.
The revision stems largely from a more optimistic earnings forecast. Morgan Stanley now models roughly 78% growth in earnings per share (EPS) for the market, up from an earlier 60% assumption, with the improvement driven predominantly by the technology sector. The firm retained its target price-to-earnings multiple at approximately 10 times, consistent with its historical framework.
Seok described the Korean equity market as positioned "in a sweet spot," reflecting an environment where an AI-led memory super-cycle is lifting chipmakers and a broader set of AI-related themes are providing additional support. He emphasized an "even more bullish view on chipmakers and peripheral Tech names," noting that stronger-than-expected memory dynamics tied to AI justify the earnings upgrades that underpin the new targets.
On the macro and policy side, Morgan Stanley points to improving domestic demand signals, a favorable policy backdrop and ongoing capital-market reforms, specifically citing the passage of Commercial Code 3.0. These institutional and demand-side shifts, the bank says, complement the earnings story and reduce some structural barriers to market appreciation.
Domestic liquidity also plays into the upgraded view. Morgan Stanley notes that local investors have turned into net buyers recently, and that customer deposits at brokerage accounts are at their highest level in a decade. The bank interprets this as substantial "dry powder" available to allocate into equities, which supports the view that flows could reinforce the positive earnings-driven momentum.
Despite the constructive repositioning, the bank identified clear concentration risk in technology. Consensus revisions remain strong, with 2026 net profit consensus expected to increase by 88% year over year, but Morgan Stanley warns that a slowdown in chipmaker earnings revisions could prompt a market correction.
In terms of sector positioning, Morgan Stanley adjusted its recommended weights: Healthcare was added to the Overweight list, non-bank financials were downgraded to Equal Weight, and the bank maintained Overweight positions in chipmakers, defense, power generation and autos.
What this means for investors
The updated KOSPI targets reflect a view that improved earnings, concentrated principally in technology, combined with policy tailwinds and elevated domestic liquidity, create a more favorable market backdrop through 2026. However, the upgrade also acknowledges that the market's dependence on a technology-driven earnings cycle creates vulnerability if chip-related revisions slow.