Global investment bank (IB) Goldman Sachs sharply raised its 12-month target for the KOSPI index to 12,000 points from the previous 9,000 points.
It has been less than a month since it raised last month's forecast from 8,000 points to 9,000 points, and it raised the target again.
Goldman Sachs said it reflected factors such as the prolonged semiconductor memory cycle, corporations' strong earnings improvement trend, and the possibility of a re-rating of the domestic stock market driven by the value-up program.
According to the financial investment industry on the 3rd, Goldman Sachs issued its latest investment report on the Korean stock market and presented 12,000 points as the 12-month target for the KOSPI. It maintained its existing "overweight" investment view on Korean stocks. Compared with the current index level, this means there is about 37% additional upside potential ahead.
Goldman Sachs said the revised target was derived by applying an 8 times 12-month forward price-earnings ratio (PER) based on solid corporate earnings forecasts.
Goldman Sachs said, "Even though the KOSPI has more than doubled this year, we maintain our overweight view," and added, "We reflected explosive corporate earnings growth and conservative valuation assumptions."
The semiconductor memory cycle was cited as the most crucial factor behind expectations for an additional rally in the domestic stock market. Goldman Sachs assessed that the market is predicting the duration of this semiconductor supercycle too short-term.
It analyzed that demand for artificial intelligence (AI) computing is surging at a pace that exceeds memory supply, strengthening chipmakers' pricing power. It projected that with the addition of high operating leverage effects, the scale of profit improvement could grow further.
Goldman Sachs emphasized, "Korean semiconductor stocks are currently at only around 5 times forward PER," adding, "The market is skeptical about how long this high-profit phase will last, but we are confident this cycle will last longer than in the past."
It also pointed out that the upward trend in the market is not confined to a specific semiconductor segment. According to Goldman Sachs' analysis, the profit growth outlook for the remaining KOSPI-listed companies, excluding Samsung Electronics and SK hynix, has also risen from about 20% in January to 57% now. This is interpreted as earnings improvement warmth spreading across the market beyond the rally led by large-cap semiconductor stocks.
Overall earnings forecasts for KOSPI corporations are also climbing steeply. At the start of the year, the market expected this year's earnings growth rate for KOSPI corporations to be around 48%. But in a recent survey, it jumped to 277%.
Goldman Sachs raised its earnings growth outlook for Korean corporations to 320% for this year and 35% for next year. Goldman Sachs assessed, "Korea is showing by far the best earnings momentum in Asia."
From a valuation perspective as well, the KOSPI still appears to remain in undervalued territory.
The KOSPI is currently trading at around 8.2 times the 12-month forward PER. Considering that in major past phases spanning both booms and downturns, the KOSPI's forward PER typically formed around 10–11 times, Goldman Sachs views the current index level as still attractive.
It also assessed that the government's push for corporate governance reform and the value-up program will lead to additional re-rating of the stock market. Noting that more than 60% of all KOSPI-listed companies are still trading below book value at a price-to-book ratio (PBR) of under 1, Goldman Sachs analyzed that there is significant room for re-rating of low-PBR names.
However, it saw that the possibility of a short-term correction remains open. This is because the KOSPI index has risen sharply by more than twofold this year and the combined market cap weight of Samsung Electronics and SK hynix has topped 50%, intensifying market concentration. In addition, the increase in speculative transactions by individual investors was also categorized as a risk factor that could heighten market volatility.
Goldman Sachs projected that solid earnings will firmly underpin the market's downside. Goldman Sachs said, "Even if we apply the past most extreme profit declines and trough valuations to today's market, the KOSPI's theoretical downside support is calculated at 7,820 points," adding, "A short-term technical correction may come, but as long as corporate earnings back it up, a pullback will instead be an opportunity to overweight."