Goldman Sachs has revised its target for the Kospi index down from 12,000 to 9,000, citing increased market volatility and a decline in earnings momentum. Despite this reduction, the firm retains an overweight position on Korean equities, suggesting that the new target still indicates a potential upside of more than 60% from current levels.
The Kospi has experienced a 40% drop from its peak, with its price-to-earnings ratio currently around four times, significantly below its historical average. Goldman Sachs believes that Korean equities are undervalued relative to their fundamentals, particularly in the memory chip sector, which is expected to see a 65% drop in earnings by 2027.
However, they also see value in non-memory stocks, which make up about half of the index and are estimated to be over 30% undervalued. The report highlights sectors such as power, industrials, and those benefiting from corporate governance reforms as attractive investment opportunities.
This downgrade aligns with a broader trend of selling in Asian technology stocks, influenced by concerns regarding AI spending, rising oil prices, and hawkish central bank policies. Additionally, South Korea has seen significant foreign outflows, with hedge funds leading the sell-off, amounting to $1 billion in recent transactions