Goldman Sachs cuts Korea's KOSPI target price by 25% to 9,000 points, but says memory chip valuations are overly pessimistic

Goldman Sachs sharply cut its target price for the South Korean stock market, but at the same time warned that the market's pessimistic pricing of the semiconductor industry has seriously deviated from fundamental reality.

According to a Bloomberg report on October 25, Goldman Sachs strategists last Friday (October 23) lowered the 12-month target for the KOSPI index from 12,000 points to 9,000 points, a cut of 25%. The adjustment came as the KOSPI had already fallen more than 35% from its June high. Despite this, Goldman Sachs maintained its positive stance on the South Korean stock market, noting that the revised target still implies more than 60% upside from current levels, and explicitly stated that "the market is pricing in an overly pessimistic fundamental outlook."

The selloff in tech stocks triggered by the retreat from AI trades has dragged South Korea from being one of the world's hottest major markets this year into the depths of the lowest valuations. According to data compiled by Bloomberg, the KOSPI's 12-month forward price-to-earnings ratio has fallen to about 4 times, an extreme low never seen among 18 trillion-dollar markets since 2006, and its valuation is about half that of Indonesia's Jakarta Composite Index (8 times earnings). Meanwhile, some investors believe the selloff has created a rare buying opportunity.

The report said the reason Goldman Sachs strategists lowered the KOSPI target was the need to adopt "more conservative valuation assumptions" after the benchmark index plunged more than 35% from its June high.

It is worth noting that Goldman Sachs had raised the target several times this year, most recently in June, and had insisted on keeping the 12,000-point target unchanged during the subsequent global AI stock selloff. This cut marks a major shift in Goldman Sachs' view of the South Korean market.

Chip giants such as Samsung Electronics and SK Hynix have made the KOSPI a barometer of AI trades. Investors' doubts about the sustainability of massive AI infrastructure spending have continued to intensify, and combined with rising financing costs and insufficient return signals, selling pressure has spread from the tech sector to the entire South Korean market.

Memory chip valuations imply a "65% earnings collapse," and Goldman Sachs believes pricing is too extreme

Despite the sharp cut in the target, Goldman Sachs strategists clearly pointed out that the market's current pricing of the semiconductor sector has seriously deviated from a reasonable range.

Goldman Sachs estimates that the current valuation level of the semiconductor sector implies an expectation that the industry's 2027 earnings will decline by 65%—a scenario Goldman Sachs considers "too pessimistic." The report noted that the market is pricing in an "overly negative fundamental outlook," and that the revised target is only meant to incorporate more conservative market pricing assumptions, not to reflect a substantive bearish view by Goldman Sachs on fundamentals.

Outside the memory chip sector, other stocks accounting for about half of the index weight are currently trading at 7.6 times forward earnings, also at historically low valuations. Goldman Sachs said that at current levels, the South Korean market still offers "attractive risk-reward."

Goldman Sachs remains bullish on stocks related to power, industrials, and corporate governance improvements, as well as companies benefiting from domestic reflation and Korean Wave culture.

Valuations fall to "world's lowest," South Korean stocks now half as cheap as Indonesia's

According to data compiled by Bloomberg, the KOSPI's 12-month forward price-to-earnings ratio has fallen to about 4 times, an extreme low never seen since 2006 among all 18 major markets with a market capitalization exceeding $1 trillion at the start of the year.

By comparison, Indonesia's Jakarta Composite Index, which likewise faces a possible two-notch MSCI rating downgrade and doubts about market investability, still has a forward price-to-earnings ratio of about 8 times. South Korean stock market valuations are now less than half those of Indonesia.

This valuation collapse has occurred against a backdrop in which South Korea's macroeconomic fundamentals are not pessimistic. South Korea's exports this year are expected to exceed $1 trillion, with strong chip demand; the Bank of Korea has also said that economic growth this year and next should be "significantly higher" than previously forecast. However, market doubts about the memory chip cycle, the outlook for AI capital expenditure, and rising borrowing costs have kept investor sentiment subdued.

Hui Ling Loh, managing director at ACG Management, said,

Some investors see the selloff as a buying opportunity, but disagreements remain

Despite the gloomy market sentiment, some investors have begun to view this selloff as a window to position for a rebound.

The KOSPI has fallen about 40% from its June high, but 12-month forward earnings forecasts have risen 22% over the same period, and the divergence between share prices and earnings expectations further highlights how extremely cheap valuations are. The index is still up 31% year to date.

Mark Matthews, head of Asia research at Julius Baer, said AI demand "still far exceeds supply," "so when we see a major pullback like the recent one, especially the overnight plunge in semiconductor stocks, this is a very good buying opportunity."

However, views differ on when sentiment will truly bottom out and whether valuations can become a reliable signal of a reversal. This selloff has also sparked a deeper discussion: in an era of deep uncertainty brought by technological change, can traditional valuation metrics still provide reliable investment guidance. Risk warning and disclaimer

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