On July 21, JPMorgan pointed out that forced de-leveraging driven by leveraged ETFs was the main cause of the recent sharp decline in South Korea's KOSPI index. The institution analyzed that the liquidation of positions by leveraged funds, rather than deteriorating corporate earnings or fundamentals, amplified market volatility. It estimates that leveraged ETF assets have now shrunk to approximately $26 billion, with the de-leveraging process currently about 75% complete. The corporate fundamentals of the Korean market remain solid, but strong de-leveraging pressures have weighed on stock prices. JPMorgan predicts that stronger regulatory measures by South Korean financial authorities, such as raising the basic deposit margin requirement and suspending new listings of single-stock leveraged ETFs, will further advance the de-leveraging process. The report also assessed that hedge fund leverage is rapidly decreasing. JPMorgan stated that the size of long-short positions under hedge fund management has dropped from over 5.5 times net assets to less than 4 times, estimating that de-leveraging is more than half done. This year, foreign net selling of Korean stocks is expected to exceed $110 billion, but about 90% of that is concentrated in memory semiconductor stocks. As the weight of memory stocks has recently declined, foreign selling pressure is gradually easing. The bank remains optimistic about the medium-to-long-term outlook. AI investment and data center investment remain robust, a slowdown in memory chip demand has not yet been confirmed, and improvements in earnings for the industrial, financial, and consumer goods sectors, as well as improvements in corporate governance, are also positive factors for the Korean stock market. JPMorgan maintains its 'overweight' rating on Korean stocks and expects the KOSPI index's 12-month target price to be 12,500 points, consistent with its previous forecast. Its base case target is 12,500 points, bull case target is 15,000 points, and bear case target is 8,000 points. (Jin10)