Goldman slashes Kospi forecast 25% but still predicts >60% rise

With one of the most bullish institutional targets for the Kospi now trimmed, the bank maintains that the market offers deep value for contrarian investors who buy into weakness rather than selling off further. Samsung Electronics and SK Hynix are crucial, because a shift in sentiment around AI capital spending would directly move the index given their weight. Goldman’s sector picks point to a possible rotation away from memory chips inside Korean equities, toward power, industrials and domestically oriented stocks. This could contain the downside for the broader index even if chip shares remain under pressure. The flows from foreign investors will be the main indicator of whether the bank’s valuation argument is taking hold.

The bank has adjusted its Kospi forecast without abandoning its overall thesis. Its view is that a market on roughly four times earnings is discounting a chip decline deeper than what is probable.

Key takeaways from the report:

• Goldman cut its 12-month Kospi forecast to 9,000 from 12,000, a 25% reduction driven by AI spending worries and a turn to more cautious valuations.
• The benchmark is down over 35% from its June peak, yet the new objective still suggests a more than 60% gain.
• The forward P/E ratio for the Kospi has fallen to roughly four, a valuation multiple not seen in 18 major markets since 2006 and about half that of Indonesian equities.
• Current chip pricing, Goldman calculates, points to a 65% drop in sector earnings in 2027, a scenario it deems excessively downbeat.
• The rest of the index, roughly half its weight, carries a multiple under eight times forward earnings.
• Goldman’s chosen themes are power, industrials, corporate governance reforms, domestic recovery and Korean popular culture.

By a quarter, Goldman Sachs has reduced its 12-month Kospi target to 9,000 from 12,000. The move reflects concerns over AI spending and a broader leaning toward stricter equity valuations. Still, the bank contends that Korean stocks appear heavily undervalued, and the updated target still points to a more than 60% increase from present levels.

The reduction comes after the index shed more than 35% from its June high. The bank had boosted its Kospi target in June and maintained an optimistic position even as tech shares worldwide retreated on the scale of AI spending commitments.

The South Korean market has been particularly vulnerable to this turn because of its large weighting in memory chip producers Samsung Electronics and SK Hynix. Both companies have been primary beneficiaries of the AI infrastructure chip demand, making the Kospi a closely tracked barometer of investor sentiment on the technology. Worries over climbing financing expenses, heavy infrastructure outlays and questionable returns on that investment have fuelled a wave of selling across the country's equity market.

Goldman’s team argues that the market is currently pricing in an excessively negative view of corporate fundamentals. The 12-month forward P/E for the Kospi has dropped to about four, a multiple unseen across 18 large markets since 2006. Korean shares are now valued at roughly half the multiple of Indonesian stocks. The bank calculates that present semiconductor pricing embeds a 65% drop in sector earnings in 2027, a projection its strategists see as too dour.

The valuation case does not end with memory chips. The bank notes that firms outside that sector, representing roughly half the benchmark, trade at less than eight times forward earnings.

Even after paring back its headline goal, Goldman still picks out certain pockets of the market: power, industrials, names linked to governance overhaul, and businesses that stand to profit from a domestic rebound and the worldwide spread of Korean culture. Whether investors buy into this value thesis will probably hinge on how attitudes toward AI expenditure develop in the coming months.