What changed and why it matters
Goldman Sachs reduced its 12-month view on Korea's benchmark to 9,000 from 12,000 after lifting it multiple times this year, including an increase in June. The bank stuck with 12,000 through a global AI-driven selloff that started later that month, but the more than 35% slide since the June high pushed the team to adopt tougher valuation inputs.
In an Oct. 25 note, the strategists wrote, "The market is pricing an overly negative fundamental outlook," and said the target was cut "to incorporate more conservative assumptions about how the market may price underlying fundamentals but still view the market as offering attractive risk/reward at current levels." They also argue that Korean equities look deeply undervalued.
The AI trade's grip on Korea
Chip leaders Samsung Electronics and SK Hynix have made the Kospi a barometer for AI sentiment. Mounting doubts about whether massive infrastructure spending can produce adequate returns, alongside higher financing costs, have pressured chip names and that wave of selling has extended across the wider Korean market.
Goldman estimates current semiconductor valuations imply a 65% slide in the sector's 2027 earnings, a view it considers excessively downbeat. Outside memory, which is about half the index, stocks trade at 7.6 times forward earnings.
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Valuations are at cycle extremes
South Korea has flipped from the year's hottest major market to the cheapest globally, with valuations roughly half of Indonesia's. On a 12 month forward price to earnings basis, the Kospi is around four, a level Bloomberg data show has not appeared across any of the 18 tracked markets since 2006, even after starting 2026 with a value above 1 trillion dollars.
Even with the downgrade, the new target still indicates a potential rise of over 60% from where things stand today.
What stays in favor
Despite the cut, Goldman continues to highlight opportunities in power, industrials, corporate governance-related names, and companies tied to domestic reflation and Korean popular culture.
The bottom line: if today's pricing really bakes in an overly negative outlook, Korea's compressed multiples could be a tailwind for your portfolio, with the trajectory hinging on semiconductors.
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