Rating Upgrade
HSBC upgraded its view on Korean equities from neutral to overweight, stating that a recent market pull‑back has removed much of the excess leverage that previously constrained the bank’s stance. The strategists, led by Herald van der Linde, noted that while volatility remains elevated, it has fallen clearly from its recent highs.
Deleveraging and Market Structure
Margin loan balances in Korea have declined by roughly $21 billion, and assets under management in single‑stock leveraged exchange‑traded funds have contracted to about 25% of their prior levels. Inflows into these leveraged products have stalled, a development the bank attributes to tighter regulatory requirements.
Earnings Outlook
According to FactSet consensus estimates, Korean corporate earnings are projected to increase by more than 300% in 2026 and to grow by approximately 30% in 2027. The strategists highlighted that the key uncertainty is whether earnings upgrades will moderate as additional memory‑chip supply comes online with a lag.
Sector and Foreign Flow Considerations
HSBC pointed to the concentration of Samsung Electronics (KS:005930) and SK Hynix (KS:000660) – together accounting for about 10% of the global emerging‑markets equity portfolio, down from 13% in June. If Korean equities continue to outperform, active funds may find it difficult to increase exposure without breaching concentration limits, potentially prompting further selling. The bank does not view this as a major head‑wind provided domestic equity demand stays strong, although underweight positioning on Korea could widen, a pattern previously observed in mainland China, Taiwan and India.
Domestic Fundamentals
The Korean government’s Value‑up program was cited as supportive. Cash balances at listed Korean companies are still rising, and HSBC estimates that cash will represent around a quarter of total assets by 2027. Planned capital expenditure is described as modest relative to cash levels, leaving scope for higher shareholder returns.
Dividend and Share‑Buyback Outlook
Dividends are on an upward trajectory while buybacks have taken a back seat during the recent rally. Samsung Electronics has announced a plan to return 50% of its free cash flow, which HSBC translates into an implied ~7% dividend yield in 2026 at current share prices.
Additional Tailwinds
The strategists added that if U.S. data‑centre spending remains resilient, the positive momentum could extend beyond memory chips into related areas such as power equipment, energy storage, and engineering.