The Dawn of a National Re-rating: Global Investment Banks' Perspective on the South Korean Market for H2 2025
Executive Summary
Beginning in May and June 2025, major global investment banks (IBs) have pivoted from their previous cautious stance to a distinctly constructive view on the South Korean market. This shift in tone is the result of a complex interplay of three key drivers: the mitigation of geopolitical trade risks, expectations of expansionary fiscal policy based on domestic political stability, and the increasing visibility of corporate governance reforms through the "Corporate Value-Up Program."
This report synthesizes and deeply analyzes the latest investment opinions on the South Korean economy and stock market from reports and market analyses published by major global IBs, including Goldman Sachs, Morgan Stanley, J.P. Morgan, and UBS, since May 2025. The analysis reveals that a new consensus is forming among IBs: South Korea's domestic policy momentum can serve as a powerful buffer against external volatility. This is materializing in the form of upgraded KOSPI price targets and a net inflow of foreign capital.
The key investment themes highlighted by these IBs are as follows. First is the potential for a structural re-rating of the Korean stock market driven by the "Value-Up Program," which provides a strong investment case, particularly for the undervalued financial sector. Second is the semiconductor supercycle, led by Artificial Intelligence (AI) and High-Bandwidth Memory (HBM), analyzed as the most dynamic investment area where opportunities and risks coexist. Third is the rise of strategic sectors such as defense and power equipment, driven by geopolitical shifts and expanding AI infrastructure investment. Lastly, growing interest in the bio/healthcare sector, which is proving its competitiveness in the global market, is also identified as a significant trend.
Based on this macroeconomic outlook and sector-specific analysis, this report comprehensively presents the specific beneficiary stocks and potential risk factors identified by global IBs, aiming to provide in-depth insights for formulating future investment strategies in the South Korean market.
Chapter 1: A New Dawn for the Korean Market: Macro Outlook and Shifting Capital Flows
In the first half of 2025, particularly from May onwards, global investment banks have distinctly upgraded their outlook on the South Korean economy. As external uncertainties that weighed on the market at the beginning of the year have partially eased and expectations for domestic policy momentum have risen, the investment appeal of the Korean market is being re-evaluated. This is clearly confirmed through three aspects: upward revisions of economic growth forecasts, adjustments to KOSPI price targets, and a tangible inflow of foreign capital.
1.1. A Chorus of Optimism: Upward Revisions to Growth Forecasts
In late May 2025, major global IBs, as if in unison, raised their forecasts for South Korea's 2025 Gross Domestic Product (GDP) growth. This is a stark contrast to the prevailing pessimism at the start of the year due to risks like US-led tariffs, and it is the most definitive sign that the market sentiment has shifted.
Goldman Sachs was the first to make a noteworthy move. In a report on May 16, Goldman Sachs significantly raised its 2025 growth forecast for South Korea by 0.4 percentage points, from 0.7% to 1.1%. The rationale behind this adjustment includes eased US tariff risks, improved growth prospects for the US and China, and the possibility of an additional stimulus package (a second supplementary budget) in Korea. Goldman Sachs quantitatively analyzed that a 5% recovery in Chinese exports could increase South Korea's exports to China by 1.6%, boosting GDP by 0.1 percentage points, and a supplementary budget equivalent to 1% of GDP could further enhance the growth rate by an additional 0.3 percentage points.
Morgan Stanley also raised its growth forecast from 1.0% to 1.1% on May 22. This is particularly significant as it marks a reversal just one month after lowering the forecast from 1.5% to 1.0% in April due to trade uncertainties. Morgan Stanley cited the gradual de-escalation of US-China tariff conflicts and the US announcement of a 90-day mutual tariff suspension as key reasons for the upgrade. Furthermore, it expects the new government's expansionary fiscal policy post-election to become a new growth engine, raising its 2026 growth forecast from 1.4% to 1.5%.
Barclays, in a report dated May 30, also slightly increased its forecast from 0.9% to 1.0%, noting the high likelihood that an expansionary fiscal policy stance will be maintained regardless of political leadership.
This series of upward revisions suggests more than just the judgment of individual IBs; it indicates that global investors are re-evaluating the risk profile of the South Korean economy. While the focus was on its vulnerability to external shocks at the beginning of the year, domestic policy (fiscal expansion, corporate reform) is now being recognized as a powerful buffer that can offset external volatility. This implies that reduced external risks have served as a catalyst to increase the weight of the positive effects of domestic policy, heralding a fundamental shift in the perspective on the Korean market.
1.2. KOSPI at an Inflection Point: Toward New Targets
The improved macroeconomic outlook is directly translating into higher targets for the Korean stock market, particularly the KOSPI index. This reflects not just a bet on economic recovery but also a valuation of the potential for structural change in the Korean market.
Goldman Sachs upgraded its investment opinion on Korean equities from 'Neutral' to 'Overweight' and raised its year-end KOSPI target from 2,900 to 3,100. This decision is based on the judgment that Korea's political and policy momentum can act as a shield against global economic uncertainty.
J.P. Morgan went a step further, presenting a bold forecast that the KOSPI could reach the 3,200 level within the next year. However, this forecast comes with a crucial precondition: the successful implementation of the 'Commercial Act amendment'. This clearly shows that J.P. Morgan directly links the KOSPI's upside potential to improvements in corporate governance. John Cho, a portfolio manager at J.P. Morgan, analyzed that while Japan's governance reform took a decade, Korea's 'Value-Up' initiative is only in its second year, suggesting significant upside potential remains.
The IBs' target price upgrades are more than just forecasts; they carry the nature of a 'valuation' of the success of structural reforms in the Korean market. J.P. Morgan's conditional forecast, in particular, hints at how closely investors will be watching the legislative process of the Commercial Act amendment. The higher the probability of reform success, the faster the KOSPI's re-rating will be. Conversely, if signs of political gridlock or reform retreat appear, the target price could be quickly revised downwards. This means investors must now consider the policy-making process of the National Assembly as a key investment variable, alongside economic indicators.
1.3. The Return of Foreign Investors: Restored Confidence Confirmed by Capital Flows
The positive shift in perspective from global IBs is being proven by actual capital flows. Foreign investors, who had shunned the Korean stock market with a 10-month streak of net selling, turned to net buying starting in May 2025.
According to the Financial Supervisory Service, foreigners net-purchased 2.01 trillion won (approximately $1.45 billion) worth of domestic listed stocks in May alone. The total net inflow of investment funds for both stocks and bonds reached $9.29 billion in May, marking the largest monthly inflow in nearly two years, since May 2023. This is a sharp reversal from the net outflow in April.
The Bank of Korea attributed this capital inflow to progress in global trade negotiations following the Trump administration's announcement of aggressive tariff measures and the easing of domestic political uncertainty. The return of foreign capital has acted as a powerful engine for the KOSPI's rise, playing a decisive role in the index breaking through the 2,800 mark in early June.
This capital flow signals the beginning of a positive feedback loop. Positive reports from global IBs improve foreign investor sentiment, the actual inflow of funds drives the stock market up, which in turn reinforces the optimistic forecasts of the IBs. The fact that the macroeconomic outlook, market targets, and actual capital flows are all aligning in a positive direction provides a strong basis for heightened expectations for the South Korean market in the second half of 2025.
Chapter 2: The Value-Up Mandate: Governance Reform Emerges as a Key Investment Theme
The most crucial keyword penetrating the Korean stock market in 2025 is undoubtedly the "Corporate Value-Up Program." This is more than just a government policy; it shows that global investors recognize it as a structural catalyst to solve the long-standing issue of the 'Korea Discount.' Global IBs are closely analyzing the progress of this program, making it a core investment theme and actively identifying sectors and stocks expected to benefit.
2.1. The Journey to Resolve the 'Korea Discount'
The "Corporate Value-Up Program" is centered on having listed companies voluntarily establish and disclose plans to enhance their corporate value, offering tax benefits and other incentives for compliance. This initiative benchmarks the successful case of the Tokyo Stock Exchange in Japan and is an attempt to fundamentally improve the constitution of the Korean stock market, which has been undervalued due to weak corporate governance and low shareholder returns.
Global IBs are showing immense interest in this program. In March 2024, key fund and pension officials, including from Goldman Sachs and J.P. Morgan, visited South Korea with the Asian Corporate Governance Association (ACGA) to meet with relevant institutions like the Korea Exchange. This demonstrates how significantly they view Korea's governance reform as a variable. US-based investment bank Jefferies, in collaboration with KB Securities, published a 54-page report titled 'An Analysis of Korea's Value-Up Reform' , and Morgan Stanley also covered this topic in an in-depth report titled 'The Value-Up Recipe for Re-rating Korea'.
Of course, there is criticism in the market that the program lacks enforcement power. However, global IBs assess that the government's strong will, pressure from institutional investors including the National Pension Service, and plans to launch the 'KRX Value-up Index' and related ETFs are creating a powerful momentum for voluntary participation by companies. Notably, in a late May report, Goldman Sachs positively evaluated that Korean companies are taking concrete actions, such as Samsung Biologics' spin-off and LG Chem's issuance of exchangeable bonds, analyzing this as tangible evidence of the 'Korea Discount' being resolved.
2.2. Prime Beneficiaries: The Revival of the Financial Sector
The financial sector, particularly banking stocks, is considered the most direct and lowest-risk beneficiary of the 'Value-Up Program.' Financial holding companies with low price-to-book ratios (PBR) and stable cash flows are optimal candidates to enhance corporate value most effectively through shareholder return policies like dividend expansion, share buybacks, and cancellations.
Global IBs are reflecting this potential in their specific investment opinions. In February 2025, J.P. Morgan highly praised KB Financial for announcing additional share buyback plans despite capital ratio pressures, viewing it as evidence of a continued commitment to shareholder returns and upgrading its 2025 earnings per share (EPS) forecast. During the same period, Bank of America (BofA) Securities positively assessed KB Financial's announcement of its largest-ever share buyback, raising its target price from 113,000 won to 118,000 won, and UBS also raised its target price from 85,600 won to 90,000 won.
Amid this trend, KT&G, Shinhan Financial Group, KB Financial, and Meritz Financial Group are gaining market attention as representative 'Value-Up beneficiaries'. The inclusion of Shinhan Financial Group in the top five holdings of J.P. Morgan's 'Korea Equity Fund' as of June 2025 is a concrete example of the high confidence IBs have in financial stocks.
However, concerns that the momentum of the Value-Up Program could weaken still exist. Some point to the potential absence of a policy control tower, suggesting that this could lead to an adjustment in financial stock prices. Nevertheless, the expectation that the Value-Up Program will lead to a long-term improvement in the Korean stock market's constitution remains valid, with the financial sector at its core.
Stock Name | Global IB | Report/Announcement Date | Investment Opinion/Evaluation | Target Price | Key Rationale | |
KB Financial | J.P. Morgan | Feb 2025 | 2025 EPS forecast upgraded | - | Consistent shareholder return policy (plan for additional share buybacks) | |
Bank of America | Feb 2025 | Target price upgraded | 118,000 KRW | Announcement of largest-ever share buyback | ||
UBS | Feb 2025 | Target price upgraded | 90,000 KRW | Positive evaluation of earnings release and shareholder return policy | ||
Shinhan Financial | J.P. Morgan | Jun 2025 | Top 5 Holding (3.84%) | - | Inclusion in fund portfolio | |
Meritz Financial | - | Jun 2025 | Mentioned as a Value-up beneficiary | - | Expectation of enhanced shareholder return policy |
Chapter 3: In-Depth Sector Analysis: Following the Flow of Global Capital
Based on a positive macroeconomic outlook for the South Korean market, global investment banks are exploring specific investment opportunities on a sector-by-sector basis. Their analysis is multi-layered, ranging from the structural changes in the semiconductor industry triggered by the AI revolution, to the defense sector where geopolitical risks act as opportunities, and to the bio/healthcare sector emerging as a new growth engine.
3.1. Semiconductors - The Epicenter of Opportunity and Risk
The semiconductor sector, the heart of the Korean stock market, is the most intensely analyzed subject for global IBs and an area where the most conflicting views collide. This is because the rosy outlook riding the massive wave of AI coexists with the harsh realities of US-China trade disputes and technological competition.
3.1.1. The Bull Case: The HBM Super Cycle Led by AI
The core rationale for optimism in the semiconductor sector is undoubtedly High-Bandwidth Memory (HBM). Goldman Sachs and Morgan Stanley believe that the explosive growth of the HBM market will fundamentally re-evaluate the value of Korean semiconductor companies. Goldman Sachs predicts that the share of HBM in SK hynix's revenue will expand to 16% by 2025, and the HBM market itself will grow at an average annual rate of 64% over the next three years.
Based on this outlook, Goldman Sachs maintains a 'Conviction Buy' opinion on SK hynix, presenting a target price of up to 285,000 won. Morgan Stanley also previously presented a target price of 210,000 won for SK hynix in a past report, based on HBM growth potential.
A positive view also exists for Samsung Electronics. Goldman Sachs emphasizes that Samsung Electronics is the only company capable of supplying HBM on a turn-key basis and predicts that it will achieve a market share comparable to SK hynix by 2025. Morgan Stanley, in its June 2, 2025, report, also positively evaluated the 'semiconductor value chain' in its Q2 earnings preview, expressing expectations for an industry recovery.
3.1.2. The Bear Case and Potential Risks: Variables in the Fog
Behind the glamorous outlook lie complex and unpredictable risks. Morgan Stanley, in particular, has sounded alarms in the market by issuing cautious or sometimes pessimistic reports on the semiconductor industry. Just as it predicted a market downturn with the phrase 'Winter is Coming' for semiconductors , Morgan Stanley has raised the possibility of a 'W-shaped cycle' for the memory industry, continuously warning about tariff risks and demand slowdown.
The most dramatic case was in September 2024, when Morgan Stanley abruptly changed its investment opinion on SK hynix from 'Overweight' to 'Underweight' and drastically lowered the target price from 260,000 won to 120,000 won. The fact that a large volume of sell orders came from the Morgan Stanley Seoul branch window just before this report was released led to an investigation by the Korea Exchange for 'front-running' suspicions. This reignited the controversy over the credibility and influence of global IB reports.
Technological risks are also emerging. UBS released an analysis suggesting that Samsung Electronics' HBM3E 12-stack product might take time to receive Nvidia's certification, potentially delaying actual supply to the fourth quarter of 2025. This shows that even within the grand narrative of AI beneficiaries, a company's technical execution capability can be a decisive variable for its stock price.
J.P. Morgan also pointed out in its Asia outlook report that the semiconductor sector is facing the challenge of a valuation de-rating, and that a conservative approach is still needed for the general memory semiconductor cycle, excluding AI.
Stock Name | Global IB | Report/Announcement Date | Investment Opinion | Target Price | Bull Case Rationale | Bear Case/Risk | |
SK hynix | Goldman Sachs | Jan 2025 | Conviction Buy | 285,000 KRW | HBM market dominance, AI demand growth | - | |
Morgan Stanley | Sep 2024 | Underweight | 120,000 KRW | - | Deteriorating memory market, front-running allegations | ||
Morgan Stanley | Sep 2023 | Overweight | 210,000 KRW | HBM growth potential | - | ||
Samsung Electronics | Goldman Sachs | Sep 2023 | Buy | 93,000 KRW | HBM turn-key supply capability, expected market share recovery in 2025 | - | |
UBS | Jun 2025 | (Negative Observation) | - | - | Potential delay in HBM3E 12-stack Nvidia certification | ||
Morgan Stanley | Apr 2025 | (Warning) | - | - | Tariff impact, increasing pressure on demand/price/inventory |
3.2. Bio & Healthcare: A New Growth Axis
Alongside semiconductors, another key growth axis that global IBs are focusing on in the Korean market is the bio and healthcare sector. This sector is attracting investor interest based on the innovative pipelines of individual companies and their potential for global market entry.
The J.P. Morgan Healthcare Conference, held annually in San Francisco, is a key stage for Korean bio companies to showcase their technology and vision to global investors. The 2025 conference saw participation from numerous Korean companies, including
Samsung Biologics, Celltrion, Lotte Biologics, Hugel, Bridge Biotherapeutics, Onconic Therapeutics, and D&D Pharmatech, all seeking global partnerships and investment. This is evidence that the Korean bio industry is no longer confined to the domestic market but is advancing onto the world stage.
Samsung Biologics, in particular, is a subject of intensive analysis by global IBs. Morgan Stanley highly values its unparalleled position in the global contract development and manufacturing organization (CDMO) market, presenting a very positive outlook with a target price of 1.5 million won. Foreign investors, trusting in Samsung Biologics' stability and growth potential within the volatile bio sector, maintain a high stake in the company. J.P. Morgan's Korea Fund also showed its confidence by including Samsung Biologics as its third-largest holding. However, Morgan Stanley also offered a cautious analysis, pointing out that the strengthening of the US's onshoring policy for biopharmaceuticals could pose a potential 'tariff risk'.
On the other hand, for Celltrion, Morgan Stanley presented a negative opinion in an October 2024 report, lowering its EPS forecast for 2025-2026 and reducing its target price, contrasting with the optimism of domestic securities firms. This is an example of how global IBs, when evaluating Korean bio companies, meticulously analyze not only long-term growth potential but also short-term performance and individual company risk factors.
3.3. Strategic Choices for a New Era: Defense and Power Equipment
The confluence of escalating global geopolitical tensions and the boom in AI data center construction has given rise to new strategic investment destinations: defense and power equipment.
Goldman Sachs has identified South Korea as a major arms supplier, second only to China, and has highlighted Korean defense stocks as an effective hedge against geopolitical risks.
Hanwha Aerospace, in particular, was mentioned as a stock expected to continue its growth in 2025 based on high profitability. Morgan Stanley also positively evaluated the 'power equipment' sector in its Q2 2025 earnings preview, singling it out as a noteworthy area alongside the semiconductor value chain.
The backdrop to this interest is the AI revolution. A J.P. Morgan report analyzed that the data center construction boom will benefit a wide range of industries, including power generation, transmission, cooling technology, and electrical components. The logic is that the massive power demand to run AI will ultimately lead to an expansion in power infrastructure investment. In this context,
HD Hyundai Electric, which is showing strong sales of high-value-added products like ultra-high voltage transformers in the North American market, is cited as a representative beneficiary.
3.4. Other Key Sector Trends: Automotive, Retail, etc.
The views of global IBs on other sectors are mixed, depending on individual issues.
Automotive (Hyundai Motor/Kia): The outlook for the automotive sector is heavily dependent on the direction of tariff risks. While HSBC positively evaluated the rising market share in the US based on the strength of hybrid models , the prevailing view, such as UBS's 'Neutral' opinion on Hyundai Motor, points to tariff uncertainty as a major risk. However, Nomura Securities upgraded its target price for Hyundai Motor, highly valuing the growth potential of its Indian subsidiary, showing that growth potential in overseas markets remains valid.
Retail/Consumer Goods: Lee Jae-man, an analyst at Hana Securities, analyzed that foreign investors are targeting sectors where their ownership is still low compared to last year, including retail and healthcare. This is interpreted as a move to preemptively secure areas with less valuation burden and greater upside potential from future capital inflows.
Internet (Naver): The inclusion of Naver in the top five holdings of the J.P. Morgan Korea Fund suggests that there is sustained interest from global IBs in Korea's leading platform companies, beyond just semiconductors.
Chapter 4: Investment Synthesis and Strategic Outlook
Synthesizing the various analyses and forecasts for the South Korean market presented by global investment banks (IBs) since May 2025, it is clear that the market sentiment has shifted to a decidedly positive tone. However, even within this optimism, opportunities and risk factors are distinctly delineated by sector and stock, requiring investors to adopt a sophisticated approach that combines macroeconomic trends with micro-level analysis.
4.1. IB Investment Opinion Synthesis Matrix
A comprehensive matrix of the key investment themes of global IBs and their corresponding sectors and stocks of interest can be constructed as follows. This provides a clear overview of the lens through which global capital is currently viewing the South Korean market.
Key Investment Theme | Core Drivers | Relevant Sectors | IB Stance | Key Stocks of Interest |
Corporate Value-Up Program | Governance reform, Enhanced shareholder returns, Resolving the Korea Discount | Financials (Banks/Securities) | Strong Positive | KB Financial, Shinhan Financial, Meritz Financial |
AI Super Cycle | HBM demand surge, Data center expansion, AI technological innovation | Semiconductors, Power Equipment/Industrials | Positive with Risks | SK hynix, Samsung Electronics, HD Hyundai Electric |
Global Supply Chain Realignment & Geopolitics | US-China competition, Increased defense spending, Onshoring | Defense, Bio/Healthcare | Positive/Selective | Hanwha Aerospace, Samsung Biologics |
US-China Trade Relations | Tariff policy volatility | Automotive, Steel, Chemicals | Neutral/Cautious | Hyundai Motor, Kia |
4.2. Promising Investment Areas for H2 2025
The following are promising investment areas derived from a comprehensive analysis, consistently receiving positive evaluations from multiple global IBs.
High-Conviction Positive:
Financial Stocks (especially Banks): As the most certain beneficiaries of the 'Value-Up Program,' they have received specific positive evaluations from numerous IBs, including J.P. Morgan, BofA, and UBS. This is the sector with the highest potential for re-rating due to enhanced shareholder return policies.
AI-related Semiconductors and Infrastructure: Despite short-term volatility and risks, the long-term growth story of the AI semiconductor sector, centered on HBM, and the power equipment sector, driven by data center expansion, remains valid. This is supported by the positive views of Goldman Sachs and Morgan Stanley.
Defense: A representative area where geopolitical instability acts as an investment opportunity, expected to benefit from the trend of increasing global defense budgets.
High Debate/Cautious Approach Needed:
Automotive: While performance fundamentals are solid, this sector could be directly hit by unpredictable tariff policies, requiring caution in investment decisions.
Individual Tech Stocks: As IB views on specific stocks like SK hynix and Celltrion are sharply divided, a thorough analysis of individual companies' technological competitiveness, performance, and risk factors must precede investment.
4.3. Future Outlook and Risk Assessment
This report concludes by examining the potential risk factors that could reverse the current positive market atmosphere.
First is Policy Execution Risk. As emphasized by J.P. Morgan and Goldman Sachs, the current optimism is predicated on the successful implementation of reform policies such as the 'Value-Up Program' and the Commercial Act amendment. If the reform momentum weakens due to political conflict or policy retreats, the market's re-rating logic will lose its force, and foreign capital could quickly exit.
Second is Global Trade and Geopolitical Volatility. The positive turn in May 2025 was decisively triggered by the easing of US-China trade conflicts. If trade disputes reignite or unexpected geopolitical shocks occur in the future, the export-dependent Korean economy and stock market could once again suffer a significant blow.
Third is the Dynamism of the Technology Cycle. The boom in the semiconductor sector cannot last forever. If AI-related demand slows faster than expected, if technological catch-up by competitor countries like China accelerates, or if individual failures such as certification delays by domestic companies occur, the current growth expectations could quickly turn into disappointment.
In conclusion, the South Korean market in the second half of 2025 will be an arena where expectations for structural change and external uncertainties are in a tense standoff. While global IBs are generally leaning more towards 'opportunity,' realizing that opportunity will require successful policy implementation and stable management of the external environment. It is a time for investors to keep an eye on macroeconomic trends while employing a selective and flexible investment strategy based on the fundamentals of individual sectors and stocks.
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