Why Japanese and Korean Equities Face Different Pressures as Global Markets Eye 15% Downside Risk

The Alert: Investment banking heavyweights Goldman Sachs and Morgan Stanley have flagged meaningful correction risks across major developed equity markets. Senior strategists highlighted that U.S., Japanese, and South Korean stock indices could experience a 15% pullback in the near term, with concerns mounting around stretched valuations and policy uncertainty.

The AI Factor Fueling Market Exuberance

The technology-led rally, particularly surrounding artificial intelligence applications, has turbocharged equity valuations to levels not seen in years. Banks’ research teams argue that markets have frontloaded excessive optimism regarding AI-driven earnings growth and transformative tech outcomes. This concentrated enthusiasm in growth-heavy sectors has created vulnerability, especially if sentiment shifts toward profit-taking.

Japanese vs Korean Markets Face Divergent Headwinds

Interestingly, Japanese and Korean equities are experiencing distinct pressures. Japan’s Nikkei Index is grappling with slower domestic growth and the ripple effects of higher global bond yields, which challenge valuations dependent on low-rate environments. Meanwhile, South Korea’s KOSPI faces its own set of challenges—semiconductor cyclicality, export sensitivity, and shifts in regional tech demand. Both markets, however, share exposure to broad-based deleveraging if global risk appetite deteriorates.

Macroeconomic Crosscurrents Intensifying Pressure

Beyond asset bubbles, the macro backdrop remains fragile. Federal Reserve policy normalization, slower growth trajectories across developed economies, and climbing bond yields have created an environment where defensive positioning is gaining traction. Investors are rotating away from high-beta assets, signaling growing unease about earnings resilience through cycle peaks.

What Comes Next

The consensus leans toward increased volatility as markets await fresh signals on inflation trends and central bank guidance. A 15% correction, while painful, would reset valuations to more sustainable levels—though near-term gyrations are likely as traders reassess risk versus reward across global equities.