Morningstar Says Korean Stocks Are EM’s Best Bet Despite Tariffs

Morningstar Wealth is strategically increasing its allocation to South Korean equities, divesting from Chinese and Japanese holdings, as Senior Portfolio Manager Mark Preskett forecasts 11-12% annual dollar returns over the next decade. This bullish outlook is predicated on Korea's robust technology sector, benefiting from the artificial intelligence boom, and recent political initiatives aimed at corporate reforms, positioning the market as the top performer within emerging and Asian markets.

Analysis

Morningstar Wealth is executing a strategic portfolio rotation within Asian and emerging markets, reducing exposure to Chinese and Japanese equities to fund an overweight position in South Korea. The firm's bullish stance, articulated by senior portfolio manager Mark Preskett, is underpinned by a forecast of 11-12% annualized returns in dollar terms from Korean stocks over the next decade. This conviction is based on two core drivers: the country's integral role in the technology sector's artificial intelligence boom and a significant domestic political push for corporate reforms aimed at improving shareholder value. This targeted reallocation highlights a view that South Korea's specific catalysts in technology and governance will enable it to outperform its regional peers, justifying a tactical divestment from markets like China and Japan despite broader regional concerns such as tariffs.

Key Decisions for Investors

• Investors with a long-term horizon should consider increasing allocation to South Korean equities, such as the EWY ETF, to capitalize on the dual secular themes of AI-driven technology growth and corporate governance improvements.
• It may be prudent to re-evaluate exposure to Chinese (MCHI) and Japanese (EWJ) equities, as this institutional shift signals a view of relative underperformance against South Korea over the medium-to-long term.
• Closely monitor the legislative and corporate progress of South Korea's reform agenda, as its successful implementation is a critical pillar supporting the forecasted double-digit returns and the overall investment thesis.