Morgan Stanley upgrades South Korean stocks to overweight, betting on AI and industrial recovery

Morgan Stanley just told investors to load up on South Korean equities, upgrading the market to overweight after a brutal stretch of selling that the firm believes has cleared the decks for a rebound. The thesis: a leverage washout in the market has improved the risk-reward profile for AI-linked and industrial stocks. The KOSPI has been on a wild ride in 2026, with a 12.6% intraday plunge in late July driven by collapsing demand for AI chips. That session closed down roughly 6%. The Morgan Stanley playbook In a research note dated July 22, 2026, the firm laid out a selective but bullish case for South Korean equities. Morgan Stanley maintained a KOSPI target of 9,000, signaling significant upside from current levels. The sector preferences tell a story about where the firm sees value after the washout. Banks are the top pick, followed by IT, industrials, and healthcare. The firm also upgraded telecom services to overweight. Morgan Stanley is advocating a barbell approach: owning leading technology stocks on one end and defensive holdings on the other. Within the industrials bucket, the firm singled out defense, shipbuilding, and nuclear energy as particularly favorable. What happen...