Global investment bank Goldman Sachs recently assessed the sharp drop in KOSPI as a correction within a long-term bull market. It said the memory chip cycle and domestic corporations' earnings growth remain solid, and kept its 12-month KOSPI target at 12,000 points and a "overweight" view. Compared with the current index, it said there is about 90% additional upside potential.
According to the financial investment industry on the 6th, Timothy Moe, Goldman Sachs' chief Asia-Pacific equity strategist, and others published a report titled "Korea: unchanged positive outlook despite a plunge" on the 4th (local time).
Moe said, "A comprehensive review of the memory chip cycle, leverage by retail investors, non-memory sectors, and the market's risk-reward structure shows the market is reflecting fundamentals that are excessively negative relative to reality."
KOSPI rose 116% since the start of the year to a record high of 9,114.55 on June 22, then fell 39% through July 30. However, on July 31, the next day, it rebounded 18% in a single session. Goldman Sachs said the recent speed and scale of the decline are similar to those during the COVID-19 spread, the 2011 correction, and the post-2021 tech boom downturn.
It cited concerns about the sustainability of the memory cycle as the biggest cause of the plunge. It said selling by leveraged exchange-traded funds (ETFs) and short-term momentum investors coincided, and that an overheated condition in which the relative strength index (RSI) topped 80 for several months also amplified the drop.
Goldman Sachs, however, judged that this memory cycle is likely to be stronger and longer than in the past. With computing demand rising rapidly and supply shortages possibly lasting through 2030, it expects memory makers to maintain strong pricing power and profitability.
Moe explained, "The market is concerned about the memory cycle, hyperscalers' capital expenditures (CapEx), capital market fundraising, and intensifying competition, but these factors are not enough to derail the long-term boom scenario."
It also assessed that excessive market leverage has been largely unwound. Assets under management in leveraged ETFs and margin trading have fallen, and tighter regulation and reduced exposure at hedge funds have made investor positioning healthier than before.
It also saw high investment appeal in non-memory sectors, which account for 40% to 50% of market capitalization. It forecast non-memory corporations' earnings to grow 71% this year and 20% next year. It also cited low valuations and improvements in corporate governance as factors supporting a re-rating of the market.
Goldman Sachs projected that earnings at KOSPI-listed companies will rise 320% in 2026, 35% in 2027, and 20% in 2028. It calculated that if the price-earnings ratio (PER), now at 5.1 times, recovers to 7.8 times, the index can reach the 12,000-point target.
Moe said, "Given the expected earnings growth rate for 2026 to 2028, the current PER of 5.1 times would only need to rise to around 7.8 times to hit the target," adding, "It is still 1.3 standard deviations below the historical average, so valuation pressure is not heavy."
Goldman Sachs picked semiconductors and artificial intelligence (AI), power equipment, physical AI, and industrials such as defense and shipbuilding as preferred sectors. It also viewed as promising holding companies, preferred shares, beneficiaries of share cancellations, high-dividend and low-PBR names, as well as sectors benefiting from an economic recovery such as finance, construction, and department stores, and K-culture-related stocks.