Global investment bank Goldman Sachs raised its 12-month KOSPI target to 8,000 from 7,000.
Timothy Mo, chief Asia-Pacific equity strategist, revised the target in a report on the 18th (local time), saying that fundamentals across Korea's semiconductors and industrials continue to improve.
Goldman Sachs cited upward revisions to corporations' earnings forecasts as the key basis for a KOSPI rise. It expected KOSPI earnings this year to increase about 220% from a year earlier. Mo said, "While earnings improvement in the semiconductor industry is pronounced, the non-semiconductor institutional sector is also expected to post a solid growth rate of about 48%."
Corporate governance reform and shareholder-return policies were also identified as additional upside drivers. Mo said, "Changes in governance remain at an early stage, and corporations' shareholder returns still fall short of fully meeting investor expectations," adding, "Meaningful changes are likely to be concentrated in the latter part going forward."
From a valuation perspective, it is still considered undervalued. Mo analyzed, "Despite the KOSPI rebound this month, the forward price-to-earnings ratio (PER) is about 7.5 times, still undervalued compared with historical averages," adding, "Considering that the average PER was around 10 times when the KOSPI reached its past peaks, there is room for additional valuation upside."
A conservative scenario for the KOSPI downside was also presented. Assuming earnings forecasts are revised down by 33% and the PER falls to around 11 times, the KOSPI downside is estimated at the 6,250 level.
There is also room for additional foreign fund inflows. Mo analyzed, "Korea's weighting within global and emerging-market funds also remains underweight," adding, "There is room for future inflows."
Earlier, Nomura Securities, a Japan-based investment bank, also set a first-half KOSPI target as high as 8,000 points at the end of February, citing an improving memory cycle.