HSBC has upgraded South Korea’s equities to overweight from neutral, citing reduced leverage risks and improving earnings visibility. The bank’s strategists pointed to a $21 billion decline in margin loan balances and a contraction in single-stock leveraged ETF assets to about a quarter of prior levels, signaling stabilization in the market’s risk profile.
The upgrade follows projections that Korean corporate earnings will surge by more than 300% in 2026, with growth of roughly 30% expected in 2027, according to FactSet consensus estimates. HSBC strategist Herald van der Linde highlighted that the earnings momentum could extend beyond memory chipmakers if U.S. data center spending remains resilient, benefiting sectors such as power equipment, energy storage, and engineering.
Van der Linde noted that overall appetite for Korean equities remains solid, supported by improved visibility into corporate cash flows. By 2027, cash is projected to account for about a quarter of total assets at listed Korean companies, reflecting stronger balance sheets. Samsung Electronics, a key driver of the market, plans to return 50% of its free cash flow, which analysts estimate could translate into a roughly 7% dividend yield in 2026 at current share prices.
Foreign investor allocations to Korean equities have also shifted, with Samsung Electronics and SK Hynix now representing about 10% of global emerging market portfolios, down from 13% in June. The adjustment reflects a broader reassessment of exposure to the Korean market amid evolving risk dynamics.
