Goldman Sachs has reaffirmed its bullish outlook on Korean stocks, maintaining an "overweight" rating and a 12-month KOSPI target of 12,000. This target implies an approximate 80% upside potential from current levels. The firm's conviction is primarily based on the expectation of a more robust and prolonged memory cycle, which analysts believe the market has yet to fully price in. The acceleration of AI computing demand and severe memory shortages are anticipated to persist until 2030, supporting chip prices and profitability in the long term, rather than being a temporary improvement.
The recent sell-off in Korean stocks, described as "overdone," was attributed to short-term volatility and "excessive positioning." Goldman Sachs noted that leveraged ETFs in Korea amplified technical selling, with assets under management shrinking by 54% from a peak of $53 billion in June to $25 billion. Retail margin trading balances also decreased from $25 billion to $19 billion. These factors led to a significant market correction, with the KOSPI plunging 22% in July after more than doubling in the first half of the year.
Goldman Sachs believes that market positioning is now "much cleaner" as retail investors have reduced debt-funded positions, regulators have tightened rules on leveraged products, and hedge funds have cut exposure. This resolution of supply-demand distortions is expected to stabilize the market. The firm projects significant corporate earnings growth, estimating 320% for 2026, 35% for 2027, and 20% for 2028, with the KOSPI currently trading at a low price-to-earnings ratio of 5.1 times. This valuation, combined with the improving market conditions, makes the expected return on risk attractive, and the firm anticipates a resumption of an upward trend.
While memory chips are a primary driver, Goldman Sachs also sees investment opportunities expanding into other sectors. These include power infrastructure, industrial automation, defense, shipbuilding, robotics, and energy. Foreign investment banks like JP Morgan and Nomura also maintain high KOSPI targets (12,500 and 11,000, respectively), contrasting with domestic brokerages, and emphasizing global semiconductor industry conditions and mid-to-long-term earnings over recent foreign investor sell-offs.
