As concerns about artificial intelligence trading in the market intensify, strategists at Goldman Sachs Group have lowered their target for the South Korean Kospi index by 25%. This is the first major reduction after the bank has raised its target several times this year.
Analysts such as Timothy Moe have lowered the target for this index to 9,000 points over the next 12 months from 12,000 points, on the grounds that after the benchmark index fell by more than 35% from its June high, more conservative valuation assumptions need to be adopted. Strategists believe that this round of selling has left Korean stocks seriously undervalued, and the adjusted target still implies that there is more than 60% room for the index to rise from its current level.
The last time a Goldman Sachs analyst raised the target for the Kospi index was in June. Despite a global sell-off in artificial intelligence stocks that began later that month causing the index components to decline, the bank still maintained a target of 12,000 points.
Chip manufacturing giants such as Samsung Electronics and SK Hynix have made South Korea's Kospi index a barometer for artificial intelligence trading. Investors are increasingly concerned about whether the massive infrastructure spending in this industry can be sustained, while financing costs continue to rise, with few signs that these investments will yield sufficient returns. The related selling pressure has spread to the overall South Korean stock market.
"The market is factoring in an overly negative fundamental outlook," Goldman Sachs strategists wrote in a report on October 25. They stated that the reduction in targets was to "take into account how conservative the market may be in assessing the relevant fundamentals, but they still believe that the current level of market risk-return is attractive."
The South Korean stock market, which was one of the hottest major markets this year, has now become the market with the lowest valuation in the world, with its valuation dropping to about half that of the Indonesian stock market. Compiled data shows that the expected price-earnings ratio for the Kospi index over the next 12 months has fallen to around 4 times. This is the first time in 18 markets since 2006 that such a low valuation has been observed. The market's market value exceeded $1 trillion at the beginning of 2026.
Goldman Sachs strategists estimate that the current valuation of semiconductor stocks implies that the industry's profits will decline by 65% in 2027, but the bank believes this scenario is overly pessimistic. Stocks outside of the memory chip industry account for about half of the index, and the current expected price-earnings ratio is 7.6 times.
Despite the latest reduction in index targets, Goldman Sachs remains optimistic about stocks related to electricity, industry, corporate governance, as well as companies that benefit from domestic re-inflation and Korean pop culture.
