Core Viewpoint - The KOSPI index in South Korea has risen nearly 50% in 2025, with Morgan Stanley analysts suggesting this is just the beginning, driven by structural growth factors despite short-term trade tensions [1] Group 1: Market Performance - The KOSPI index has increased nearly 50% year-to-date, outperforming other Asian markets, with the MSCI Korea index up 65% compared to the 27% rise in the Asia-Pacific index [1] - Morgan Stanley has raised its KOSPI target from 3250 to 3800 points, with a bullish scenario suggesting it could reach 4200 points [4] Group 2: Sector Analysis - The technology sector is expected to benefit significantly from the AI expansion, with analysts noting that the storage chip industry is entering a new upcycle driven by AI, with supply constraints supporting price increases [5] - Major companies like Samsung Electronics and SK Hynix are projected to be the primary beneficiaries, with potential stock price increases contributing to a 5.3% rise in the KOSPI index [6] Group 3: Super Cycles Driving Growth - Morgan Stanley identifies four super cycles driving structural growth in the Korean economy: AI technology diffusion, defense industry, power infrastructure, and the Korean Wave culture [7] - The defense sector is experiencing increased demand due to geopolitical risks and modernization needs, with European countries committing to higher defense spending [7] - The power infrastructure sector is expanding globally, with Korean manufacturers gaining orders in major projects due to competitive costs and advanced technology [7] - The Korean Wave culture, particularly in beauty products and instant noodles, is seeing significant growth, with beauty exports to Europe up 59% year-on-year [7] Group 4: Government Reforms - The execution of government reform agendas is becoming a focal point for the market, with expected reforms related to stock buyback rules and key tax reforms [8] - Proposed changes to the dividend tax rate are expected to be set below 30%, and stock buyback rule reforms are anticipated, though the timing remains uncertain [10]

Investment Rating - The report does not explicitly state an investment rating for the industry Core Insights - The report highlights a significant liquidity influx into the A-share market, amounting to approximately 1.5 to 1.7 trillion RMB in the first half of 2025, driven by both institutional and retail investors [8][9] - The narrative around the market is shifting, with a focus on policy adjustments to combat deflation and improve economic conditions, particularly through measures that enhance social welfare and stimulate demand [18][19] - The report emphasizes the importance of structural reforms to address systemic overcapacity and the need for a balanced approach to economic recovery [68][77] Summary by Sections Market Liquidity - The Morgan Stanley Free Liquidity Index turned positive in June 2025, indicating improved market conditions [8] - Net inflows into the A-share market from institutional and retail investors reached 1.5 to 1.7 trillion RMB in the first half of 2025 [9] Policy and Economic Outlook - The report discusses the government's deepening understanding of deflation and the resulting policy shifts aimed at stimulating the economy [18] - It notes that the "924" policy shift and other measures are expected to foster a more favorable economic environment [19] Structural Reforms - The report stresses the necessity for structural reforms to mitigate overcapacity issues and enhance market efficiency [77] - It suggests that a market-oriented approach combined with structural reforms is essential for sustainable economic recovery [68] Emerging Industries - The report identifies significant growth potential in emerging industries, particularly in AI and robotics, with predictions of substantial market expansion by 2050 [59][63] - It highlights China's competitive advantages in AI and robotics, with a notable increase in patent applications in humanoid robots and autonomous driving technologies [53][63]