[TMGM Financial Recap] 9,000: Goldman Sachs Lowers KOSPI Target Yet Describes Market as “Overly Pessimistic”

25% was the size of Goldman Sachs’ KOSPI target cut. On 25 October, the strategy team led by Timothy Moe reset its 12-month objective for South Korea’s index from 12,000 to 9,000. Several increases earlier this year had preceded this first substantial downward revision.

That downgrade sat alongside an apparently contradictory message in the report: “The market is pricing in an overly pessimistic fundamental outlook.” Explaining the adjustment, Goldman pointed to “more conservative market valuation assumptions,” explicitly distinguishing these from a materially bearish assessment of fundamentals.

Four-Times P/E: Reading the KOSPI’s Valuation

Approximately four times is now the KOSPI’s price-to-earnings multiple for the next 12 months. Bloomberg’s compiled data show 4.2 times. With records beginning in 2006, South Korea has become the first trillion-dollar equity market to slip below five times forward earnings.

Bloomberg’s coverage includes 18 markets worth more than $1 trillion at the beginning of the year. The KOSPI’s breach marks a first for that group: no benchmark had previously been valued below five times forward earnings.

The valuation gap with Indonesia illustrates the scale. Investors often equate Indonesian equities with a cheap market, yet the Jakarta Composite Index carries a forward earnings multiple of approximately eight times. South Korea’s multiple is roughly half that level, leaving the KOSPI at about half the valuation of an already inexpensive comparison market.

Index composition matters when interpreting the four-times reading. This is an aggregate valuation for a highly concentrated benchmark, not a uniform multiple across its constituents. Samsung Electronics and SK Hynix once held a combined weighting of more than 50%. The exceptionally low valuations of these two semiconductor giants account for much of the KOSPI’s depressed P/E ratio.

A 65% collapse in semiconductor industry earnings in 2027 is already embedded in South Korean sector valuations, Goldman estimates.

Such a 65% contraction would resemble a deep recession, not merely weaker growth. Collapsing demand, plunging prices and successive halvings of profits form the semiconductor sector’s worst-case scenario. Investors have made that scenario their baseline, an assumption Goldman judges excessively pessimistic.

The less prominent parts of the valuation picture support that judgement. Approximately half the KOSPI’s weighting comprises shares outside memory chips, priced at 7.6 times forward earnings. On a basis excluding memory giants such as Samsung Electronics and SK Hynix, the index’s forward earnings multiple is approximately 8.4 times. This puts it in the 11th percentile of its historical valuation range.

Semiconductor pessimism is therefore depressing the aggregate index multiple. Around eight times earnings would still represent a cheap valuation, but not the extreme discount suggested by four times.

Earnings Forecasts Up, Share Prices Down

Opposing trends in prices and projected earnings give Goldman a stronger basis for its pessimism assessment than low valuations on their own.

JPMorgan documented that mismatch on 20 October. Through October’s correction, forward earnings estimates for Samsung and SK Hynix kept climbing despite heavy losses in their shares. Memory chips were not alone: industrials, financials and healthcare also recorded improving earnings expectations alongside falling share prices. Their price declines, however, were relatively smaller.

Chip prices, rather than chipmakers’ stock prices, should command investors’ attention, Bank of Korea Governor Hyun Song Shin said publicly on 22 October. He reported no signs of falling chip prices and said they could increase further. His projections, based on customs data, put South Korea’s total exports above $1 trillion this year and the current account surplus at $450 billion.

The finance ministry in South Korea had delivered a similar assessment on 16 October. Its statement cited improving corporate earnings, strong growth expectations and a current account surplus as indications of solid equity market fundamentals. In regulators’ assessment, the extent of the market declines and capital flows “may have reflected an overreaction” to factors such as increasing global interest rates and uncertainty about AI semiconductor investment.

Stronger exports and rising earnings do not match the direction of share prices. Together, these trends point to fund flows, rather than fundamentals, as the force behind the sell-off. Valuation discounts are failing to generate purchases because the market’s sources of supporting demand have all disappeared together.

Overseas capital is leaving the market. Net disposals of KOSPI shares by foreign investors amounted to KRW 18.115 trillion from 1 to 20 October. Approximately KRW 14 trillion involved Samsung Electronics and SK Hynix, representing nearly 80% of that total. Foreign net selling on 12 October came close to KRW 2 trillion alone; cumulative foreign outflows across the past month were above KRW 29.7 trillion.

Repurchase demand is receding too. Since late August 2025, corporate share buybacks have supplied the main support for South Korean equities. With Samsung’s programme finished and SK Hynix’s programme close to ending, this critical buying source is diminishing.

Unresolved leverage adds another burden. The substantial sell-off has left holdings in leveraged ETFs elevated, with JPMorgan characterising outflows as “surprisingly limited,” while remaining leveraged positions mechanically generate selling pressure during sharp daily declines. A further selling wave remains possible until that leverage overhang is substantially cleared.

For JPMorgan, a strong valuation and technical case for buying the dip is being undermined by the rapid disappearance of marginal buyers. Buybacks at Samsung and SK Hynix are winding down, overseas selling persists and domestic institutional demand is weak. These forces have removed the market’s most important buying support at precisely the point of greatest need.

9,000 Target: Separating Sentiment From Fundamentals

Market conditions explain the technical, reactive nature of the target adjustment. Last Friday’s KOSPI close of 5,550 followed a decline of more than 35% from the June peak. Rather than preserve the optimistic assumptions supporting its earlier 12,000 objective, Goldman has recalibrated valuations to a market where sentiment is already extreme. Its stated approach incorporates “more conservative market valuation assumptions.”

A separate analytical judgement underlies the claim of excessive pessimism. Goldman sees no justification for the 65% collapse in semiconductor earnings in 2027 implied by prices. In its assessment, an extreme outcome has become the market’s baseline.

Sentiment is what the target cut recognises; fundamentals are what the pessimism assessment addresses. The distinction matters. Despite being reduced to 9,000, the target retains more than 60% upside relative to the current 5,550 level.

Under conservative assumptions, Goldman’s 12-month destination is 9,000, substantially above the present market. That is not a prediction that the KOSPI will fall to 9,000.

The bank’s investment preferences are also explicit. Goldman continues to favour power-related shares, industrials and companies associated with corporate governance reform. It is also positive on businesses benefiting from domestic reflation and Korean culture’s global popularity. Across these themes, the shared characteristic is the absence of exclusive reliance on indefinitely expanding AI capital expenditure.

There is genuine information in the KOSPI’s four-times P/E: it expresses investors’ worst-case assessment of the AI semiconductor cycle. Goldman’s argument, however, is not confined to calling four times earnings inexpensive. Export data, chip prices and upward revisions to earnings are moving in directions inconsistent with the implied 65% earnings collapse.

South Korean equities face a simultaneous withdrawal of foreign capital, corporate buybacks and leveraged funds. As these three buying sources retreat, they leave a semiconductor-heavy index in a liquidity vacuum.

The 9,000 target recognises the pressure exerted by those fund flows. Goldman’s accompanying assessment of excessive pessimism makes a different point: the price decline has gone further than fundamentals can justify.

Neither Goldman nor JPMorgan has specified when valuations might recover. JPMorgan has stated only a condition for sufficient momentum in systematic buying: a material reduction in the leverage overhang and a subsidence in volatility. Until then, such momentum is unlikely.

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