Goldman Sachs Douses South Korea Sell-Off Fears as Kospi Target Remains

Goldman Sachs analysts have downplayed South Korea's recent market sell-off, calling it a temporary correction within a long-term bull market. The bank maintains its 12-month target of 12,000 for the Kospi index, implying around 92% additional upside from current levels.

The sell-off, which saw the Kospi plunge 39%, was triggered by concerns about the sustainability of the memory semiconductor cycle and selling pressure from leveraged exchange-traded funds. However, Goldman Sachs believes that this cycle is likely to be stronger and longer-lasting than any previous one due to accelerating computing demand driven by artificial intelligence proliferation and a severe supply shortage.

The bank notes that excessive market positioning has been substantially unwound, with declining net assets in leveraged ETFs, reduced margin loan balances, tighter regulations, and diminished hedge fund exposure. Goldman Sachs also highlighted the investment appeal of non-memory sectors, which account for around 40-50% of total market capitalization.

The Kospi's current price-to-earnings ratio stands at just 5.1 times, and achieving the 12,000 target would only require a recovery to 7.8 times, still below valuation levels seen at past bull market peaks. Goldman Sachs recommended semiconductors and AI, electrical equipment, and industrial sectors such as defense and shipbuilding as preferred sectors.