Goldman Sachs cuts Kospi target by 25% amid AI stock selloff

Goldman Sachs has reduced its 12-month target for South Korea's Kospi Index by 25%, reflecting rising concerns over artificial intelligence investments and more cautious valuations of equities. Timothy Moe, a lead strategist, lowered the target from 12,000 to 9,000 after the benchmark fell more than 35% from its June high. Despite the downgrade, the revised forecast still suggests a potential upside of over 60% from the present level, indicating that Korean equities are significantly undervalued in the bank's opinion.

Goldman Sachs had previously increased its Kospi target in June, maintaining a bullish outlook even as global technology stocks declined due to worries about AI spending. South Korea's market has been especially sensitive due to its heavy reliance on semiconductor manufacturers like Samsung Electronics and SK Hynix, which have benefited from the demand for memory chips in AI infrastructure.

The Kospi serves as a key indicator of investor sentiment towards the technology sector. However, rising financing costs, substantial infrastructure investments, and uncertain returns have led to widespread selling across Korean equities. Goldman's strategists argue that the market is pricing in an excessively gloomy outlook for corporate fundamentals.

The Kospi's 12-month forward price-to-earnings ratio has dropped to around four, a level not observed in 18 major markets since 2006. Korean stocks are now trading at about half the valuation of Indonesian equities, emphasizing the extent of the recent market downturn. According to Goldman's estimates, semiconductor valuations imply a 65% decline in sector earnings in 2027, a scenario the analysts consider overly pessimistic.

While the bank has reduced its overall market target, it still identifies potential opportunities in power, industrials, corporate governance-related stocks, and companies benefiting from domestic economic recovery and Korean popular culture.