[TMGM Financial Recap] Goldman Sachs Sends Apparently Conflicting Signals as KOSPI Target Falls to 9,000 Despite Market Being Deemed “Overly Pessimistic”

A 25% reduction took Goldman Sachs’ 12-month target for South Korea’s KOSPI index to 9,000 from 12,000 on 25 October. The strategy team, headed by Timothy Moe, made the bank’s first sizeable downward adjustment following several increases to the target earlier this year.

Alongside the lower target, the report offered an apparently conflicting assessment: “The market is pricing in an overly pessimistic fundamental outlook.” The bank made clear that it had adopted “more conservative market valuation assumptions,” not a materially bearish position on fundamentals.

KOSPI’s Four-Times P/E Reflects an Exceptional Discount

At roughly four times forecast earnings over the next 12 months, the KOSPI’s valuation has reached a historic low threshold. The precise multiple is 4.2 times, according to data compiled by Bloomberg. On records extending back to 2006, this makes South Korea the first trillion-dollar equity market to trade below five times forward earnings.

Bloomberg follows 18 markets whose capitalisations stood above $1 trillion at the start of the year. Until the KOSPI set this record, not one of their benchmark indices had traded on a forward earnings multiple below five times.

The scale of the discount becomes clearer against Indonesia. With the Jakarta Composite Index valued at approximately eight times forward earnings, the KOSPI trades on roughly half its multiple. Many investors already see Indonesian shares as the definition of a cheap market; South Korean shares are available at about half that valuation.

That four-times figure needs to be read as a multiple for the whole index. Concentration is a defining feature of the KOSPI: the combined weighting of Samsung Electronics and SK Hynix exceeded 50% at one stage. Much of the index’s exceptionally depressed P/E ratio stems from the very low valuations assigned to those two semiconductor groups.

Goldman calculates that valuations now prevailing in South Korea’s semiconductor industry already allow for a 65% collapse in sector earnings in 2027.

An earnings contraction of 65% would be closer to a deep recession than a simple slowdown in growth. Investors are effectively using the semiconductor industry’s worst-case scenario as their starting point: demand collapses, prices tumble and profits are halved repeatedly. For Goldman, that assumption is excessively pessimistic.

A detail that can readily be missed reinforces the bank’s argument. Approximately half the KOSPI’s weighting lies outside memory chips, and those shares command 7.6 times forward earnings. Remove memory-chip giants such as Samsung Electronics and SK Hynix, and the index’s forward P/E is approximately 8.4 times, putting it at the 11th percentile of its historical valuation range.

While a multiple of around eight times earnings is hardly expensive, it is much less exceptional than four times. Pessimism towards semiconductor shares has depressed the valuation of the index as a whole.

Shares Retreat Despite Upward Earnings Revisions

More persuasive than low multiples alone is the divergence underlying Goldman’s argument: the direction of share prices is at odds with that of earnings expectations.

JPMorgan’s report dated 20 October drew attention to steep falls in Samsung and SK Hynix shares despite continued increases in both companies’ forward earnings forecasts during the October correction. Other sectors show the same disconnect. Forecast earnings for industrials, financials and healthcare have continued to improve too, though their share price losses have been comparatively modest.

In public remarks on 22 October, Bank of Korea Governor Hyun Song Shin advised investors to concentrate on the price of chips, not the share prices of their manufacturers. He saw no sign of chip prices falling and said further increases were possible. Using customs figures, he forecast that South Korean exports would surpass $1 trillion this year, alongside a current account surplus reaching $450 billion.

A statement from South Korea’s finance ministry on 16 October presented a comparable view. It cited strong expectations for growth, a current account surplus and better corporate earnings as signs that the equity market’s fundamentals were still sound. Regulators said market declines and capital flows on this scale “may have reflected an overreaction” to influences such as rising interest rates globally and uncertainty over investment in AI semiconductors.

Falling equities sit alongside rising earnings and strengthening exports. This combination suggests a sell-off rooted in fund flows rather than underlying fundamentals. Inexpensive valuations have not encouraged buying because the demand sources underpinning the market have all withdrawn at once.

The retreat by overseas investors is substantial. From 1 to 20 October, their net sales of KOSPI shares reached KRW 18.115 trillion, with approximately KRW 14 trillion attributable to Samsung Electronics and SK Hynix together, nearly 80% of the total. Net foreign sales on 12 October alone were almost KRW 2 trillion. Over the past month, cumulative foreign outflows exceeded KRW 29.7 trillion.

Support from company share repurchases is ebbing as well. Buybacks have been the mainstay of South Korean equities since late August 2025, but Samsung’s programme has finished and SK Hynix’s is close to completion. An essential source of buying is therefore being withdrawn.

Unwinding leverage remains unfinished business for the market. Holdings of leveraged ETFs are still high after the sizeable sell-off. Describing withdrawals from these products as “surprisingly limited,” JPMorgan noted that remaining leveraged positions still exert mechanical selling pressure on days when prices drop sharply. Further selling cannot be excluded before this overhang has been substantially reduced.

In JPMorgan’s assessment, strong buy-the-dip signals from valuations and technical indicators coincide with the rapid retreat of marginal buyers. The combination of diminishing Samsung and SK Hynix buybacks, persistent foreign selling and weak demand from domestic institutions has deprived the market of its principal buying support just as that support is most needed.

Goldman Lowers Its Target Without Endorsing Market Pessimism

The reduction in the target is a technical response to market conditions. By last Friday’s close of 5,550, the KOSPI had lost more than 35% from its June peak. Against already extreme sentiment, Goldman has adjusted its valuation framework to the prevailing market rather than retaining the optimism behind its former 12,000 target. The bank describes this as incorporating “more conservative market valuation assumptions.”

Its verdict on excessive pessimism belongs to a different analytical question. In Goldman’s judgement, prices embed an unwarranted assumption that semiconductor earnings will collapse by 65% in 2027, elevating an extreme scenario to the status of a baseline.

One assessment concerns sentiment; the other concerns fundamentals. The target cut recognises the former, while the argument about excessive pessimism expresses Goldman’s view of the latter. Moreover, the new 9,000 target remains more than 60% above the current 5,550 level.

Rather than forecasting a KOSPI decline to 9,000, Goldman is placing its 12-month target at 9,000 on conservative assumptions. That objective remains well above where the market currently trades.

The report also outlines where Goldman sees investment opportunities. The bank retains a positive view of power-related shares, industrials, companies connected with corporate governance reform, and businesses benefiting from domestic reflation and the worldwide popularity of Korean culture. None of these themes depends entirely on AI capital expenditure continuing to expand without end.

At four times earnings, the KOSPI is sending a genuine pricing signal about the market’s worst-case assessment of the AI semiconductor cycle. Goldman’s report, however, is making more than a simple claim that this multiple is cheap. Its central point is that a projected 65% earnings collapse is at odds with export data trends, chip prices and rising earnings forecasts.

South Korean equities face a simultaneous withdrawal of foreign capital, corporate buybacks and leveraged funds, three sources of buying demand. Their retreat is leaving a semiconductor-heavy index in a liquidity vacuum.

The revised 9,000 target reflects Goldman’s recognition of the pressure from these fund flows. Its accompanying assessment of excessive pessimism makes a separate argument: prices have fallen further than fundamentals can justify.

Neither Goldman nor JPMorgan has set out when valuations might start to recover. JPMorgan specified only a condition for that recovery: systematic buying is unlikely to gain enough momentum before the leverage overhang is materially smaller and volatility has eased.

For a market valued at four times earnings, the missing element is a marginal buyer prepared to enter.