JPMorgan lifts Kospi target to 12,500, sets bull case at 15,000

JPMorgan raised its 12-month Kospi target to 12,500 on Thursday, keeping South Korea its top equity market in Asia as AI-driven earnings offset heavy foreign selling.

"We remain directionally bullish on Korea equities despite ongoing forced foreign selling and elevated volatility," JPMorgan strategists said in a report, adding that both pressures are likely to persist.

The bank set a bull-case target of 15,000 and a bear case of 8,000. The upgrade marks JPMorgan's third increase in two months, following a move to 10,000 in May and 7,000 in April. Goldman Sachs recently raised its Kospi target to 12,000, while Morgan Stanley lifted its to 10,500.

The call underscores how Korea's memory-chip sector has become a proxy for the global AI cycle. Chipmakers now generate profits large enough to influence corporate income, household wealth and government tax revenue, JPMorgan said. The Kospi broke above the 9,000 mark last week.

JPMorgan said investors should add exposure on pullbacks and maintain maximum allocation to Korea, citing AI-driven earnings, broader industrial growth, potential financial-sector gains and support from corporate-governance reforms.

The bank expects a "higher-for-longer" memory cycle, supported by pricing power that has made Korean technology earnings highly sensitive to AI data-center spending. Memory-chip stocks account for about 50 percent of the Kospi's weighting.

Still, the rally faces structural headwinds. JPMorgan estimated overseas investors have sold about $95 billion of Korean equities this year, with more than 90 percent of the outflows concentrated in the two major memory names. Those stocks have grown so large that some emerging-market investors are hitting mandate limits, forcing them to sell into rallies.

Market structure is amplifying the swings. Leveraged exchange-traded funds tied to Korean equities have grown to about $50 billion in assets, pushing implied volatility sharply higher through futures, options and cash-market activity, JPMorgan said.

The foreign selling has also weighed on the won, though potential Bank of Korea rate hikes and seasonal tax-related flows in August could provide support, the bank said.

Domestic investors have absorbed much of the selling. JPMorgan estimated Korean individuals bought about $80 billion of local equities this year, including ETF inflows. Retail demand may continue as households repatriate money from overseas stocks and property investment remains constrained.

The bullish outlook depends on AI earnings momentum sustaining its current trajectory. A loss of confidence in the AI trade could trigger sharp pullbacks, JPMorgan warned, citing risks around pricing, Chinese competition, export controls and new equity and debt supply.

This article is for informational purposes only and does not constitute investment advice.