Goldman Sachs cut its 12-month target for the KOSPI by 25%, from 12,000 to 9,000. The move comes as anxiety over artificial intelligence (AI) investment has spread.
Bloomberg News reported on the 25th (local time) that Goldman Sachs included the target adjustment in a report it issued recently.
Goldman Sachs explained that it conservatively revised its valuation assumptions in view of the KOSPI having fallen by more than 35% since peaking in June. It nevertheless stressed that there is still room for the index to rise more than 60% from its current level. After raising its target to 12,000 in June, Goldman Sachs did not change it even as sell-offs of AI-related stocks continued worldwide.
Goldman Sachs strategists said, "The market is pricing in an excessively negative fundamental outlook," adding, "Although we lowered the target, we believe current levels still offer an attractive risk-reward."
The sell-off spread across the Korean stock market. According to figures compiled by Bloomberg, the KOSPI's 12-month forward price-to-earnings ratio (PER) fell to around 4 times. That is half of Indonesia's market, which received a two-notch downgrade warning from MSCI (Morgan Stanley Capital International). The Jakarta Composite Index (JCI) has a PER of 8 times.
Goldman Sachs estimated that the recent plunge in semiconductor stocks has priced in a situation in which next year's sector earnings fall by as much as 65%, and called this an "excessively pessimistic scenario." The forward PER for the rest of the stocks excluding memory is about 7.6 times. That is twice the PER of the index as a whole, meaning the plunge in memory stocks has pushed the KOSPI into a record undervalued zone.
Bloomberg analyzed that, with large semiconductor stocks such as Samsung Electronics and SK hynix leading the market, the KOSPI has become a gauge of AI investment trends. It also pointed out that worries are growing over whether massive infrastructure investment can continue and over rising funding costs in the industry, while signs supporting profitability are lacking.
Hui Ling Lo, managing director at ACG Management, said, "Concerns about aggressive AI investment have grown large enough to offset solid earnings and guidance," adding, "Investors are weighing the impact of rising borrowing costs on AI-related stocks on top of safe-haven demand."
On the other hand, some investors see this plunge as a buying opportunity. The KOSPI is about 40% below its June high, but its 12-month forward earnings estimate has risen 22% over the same period. Its cumulative gain since the start of the year is still 31%. Goldman Sachs has not withdrawn its positive view on stocks tied to power and industrials and corporate governance improvement, and on beneficiaries of a domestic demand recovery and Korean pop culture.
Mark Matthews, head of Asia research at Julius Baer, said on Bloomberg TV, "AI demand still overwhelmingly exceeds supply," adding, "A big correction like the recent plunge in semiconductor stocks is a buying opportunity."