The Four Major "Super Cycles" and "Institutional Reforms"—Is the Surge in the Korean Stock Market Just Beginning?
The South Korean stock market KOSPI index has risen nearly 50% in 2025, but Morgan Stanley analysts believe this is just the beginning.
On October 14, according to information from Wind Trading Desk, Morgan Stanley stated in its latest research report that although intensifying trade tensions may bring short-term fluctuations, structural growth drivers will limit downside risk and push Korean stocks further up.
The bank’s Korea strategy team leader Joon Seok and other analysts believe that the four major super-cycles—AI diffusion, defense, power infrastructure, and Korean Wave culture—are resonating with the government’s reform agenda, providing downside protection and upward momentum for the South Korean stock market.
Korean stocks have risen nearly 50% so far this year, performing the best among Asian markets. The MSCI Korea Index is up 65% so far this year, far surpassing the Asia-Pacific index’s 27% gain. Analysts believe that unlike mere cyclical recoveries, this round of gains is founded on stronger structural growth.
The bank has sharply raised its KOSPI target price from 3,250 points to 3,800 points, and under bullish scenarios could reach 4,200 points. At the same time, Morgan Stanley has upgraded the technology sector rating to overweight, mainly based on their analyst Shawn Kim’s positive outlook for Korea’s tech industry and the upgrade of SK Hynix.
AI Diffusion Leads Tech Sector Super-Cycle
According to Morgan Stanley analysis, AI applications are spreading from high-end chips to general-purpose memory chips and AI chip substrates and other peripheral technologies. Analyst Shawn Kim believes that commodity memory still has more room to rise, and supply-demand dynamics indicate that shortages in areas such as DRAM and NAND are intensifying.
The research report states that the memory chip industry is entering a new upward cycle, which typically lasts 4-6 quarters. DDR5 and DDR4 contract/spot prices are both rising, indicating that supply constraints are supporting prices. Unlike previous cycles, this round of gains comes more from AI-driven structural growth opportunities rather than purely cyclical factors.
Leading companies such as Samsung Electronics and SK Hynix will be the main beneficiaries. Morgan Stanley calculates that if these two companies reach their benchmark target prices, the KOSPI index will rise by 5.3% to 3,803 points. In optimistic scenarios, the index could reach 4,118 points.
Four Super-Cycles Drive Structural Growth
Morgan Stanley has identified four super-cycles in the Korean economy: AI technology diffusion, defense industry, power infrastructure construction, and the export of Korean Wave culture. Stocks related to these sectors account for about 40% of KOSPI market capitalization.
In the defense sector, Korean military-industrial companies are benefiting from rising geopolitical risks and demand for equipment upgrades. European countries like Poland and Romania continue to pledge increased defense spending, and missile system demand is growing strongly. Replacement demand is also starting to emerge, offering Korea new opportunities for defense exports to traditional markets such as the United States and Canada.
In terms of power infrastructure, Korea is expanding from domestic construction to global exports. Domestic AI data centers, electric vehicle manufacturing, and electrification are driving growth in power demand, restarting a long-stalled capital expenditure cycle. Korean power equipment manufacturers, relying on cost competitiveness and mature technology, are winning orders in major projects in the United States, Middle East, and Europe.
Korean Wave culture continues strong growth, especially in beauty products and instant noodles exports. Europe has become an important market, with beauty exports up 59% year-on-year in the first three quarters, accounting for 12% of total exports. Analysts expect that by 2027 Korea’s instant noodles will account for 12% of the global market share, up 2.5 percentage points from 2024.
Institutional Reform Agenda Steadily Progresses
Implementation of the government’s reform agenda has become a market focus. Morgan Stanley expects the next round of reforms to involve treasury stock rules and key tax reforms.
For dividend tax reform, the baseline scenario assumes the maximum rate will be set below 30%, lower than the government’s proposed 35%, and will be confirmed in 2025.The timing of treasury stock rule reform is uncertain, but it is a matter of when rather than if.
Looking toward 2026, the bank’s analysts expect changes in capital market rules, domestic liquidity measures, and company actions.
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The above content is from Wind Trading Desk.
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