Asia Equity Strategy: Korea Up to Neutral, India Down to Underweight
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HSBC upgraded South Korean equities from Underweight to Neutral, citing the substantial unwind of crowded foreign positions and strong domestic capital inflows. The upgrade also reflects promising earnings growth prospects driven by AI and semiconductor demand. Conversely, India was downgraded from Neutral to Underweight due to escalating inflation and demand pressures that threaten earnings sustainability.
In South Korea, foreign investors aggressively sold approximately US$21 billion worth of Samsung Electronics and SK Hynix stock in February alone, with even larger outflows recorded in March. However, robust domestic retail participation through direct equity purchases and exchange-traded funds has provided a strong market floor. Government policies continue to encourage this shift, including a new dividend tax cap of 30% and the introduction of Return Investment Accounts, which offer tax incentives for investing domestically. Over 90,000 accounts were opened in the first week.
Earnings momentum remains exceptionally strong, with FTSE Korea index earnings for 2026 projected to triple, primarily propelled by Samsung Electronics and SK Hynix. As a leading supplier of high-bandwidth memory to Nvidia, SK Hynix is expected to see a fourfold increase in operating profit. Meanwhile, HSBC warns that Indian consensus estimates of 16% earnings growth for 2026 appear vulnerable to downgrades. Despite a significant valuation correction from previous highs, Indian equities look expensive relative to Northeast Asian peers within the current macroeconomic landscape.