Wall Street’s View on Korean Stocks: KOSPI Price-to-Earnings Ratio Hits 20-Year Low, Goldman Sachs Maintains 12,000-Point Target and Recommends Buying on Dips

BlockBeats News, July 19—Amid a global semiconductor sell-off and momentum reversal, the Korean KOSPI index has fallen nearly 25% from its June 22 peak, dropping another 8.8% this week. As of July 16, its 12-month forward price-to-earnings ratio had decreased to 5.78 times, lower than the trough of the 2008 global financial crisis and marking the lowest level since 2004.

Goldman Sachs noted in its weekly report on July 17 that, based on a stress test, even if earnings per share were cut by 41% (the worst level seen during the financial crisis), and valued at 13 times EPS as in the 2008 trough, the KOSPI would still be at about 8965 points—significantly higher than current levels. This suggests that valuations now present a positive skew in risk-reward characteristics. In terms of price-to-book ratio, the forward price-to-book has fallen to 1.43 times, while the forward ROE remains high at around 25%, with a rarely seen divergence between these two metrics.

UBS added that if Samsung Electronics and SK Hynix are excluded, the overall forward price-to-earnings ratio for KOSPI is 8.79 times, still below the historical average. There is a marginal shift in foreign capital flows: this week, foreign investors switched to net buying of approximately 19 billion KRW, mainly entering the automobile and retail sectors, while the technology sector continued to see net selling of about 76.6 billion KRW; the KRW appreciated 1.2% against the USD this week. However, the Goldman Sachs Korea equity risk barometer stands at -2.7, still deeply within the risk-averse region.

On the regulatory side, the South Korean government has introduced a series of new regulations for single-stock leveraged ETFs: from August 5, the cash margin requirement will be raised from about 3 million KRW to 30 million KRW; from August 19, substitute collateral will be prohibited, new product launches will be suspended, and marketing of existing products will be immediately banned. The minimum trading unit is expected to be increased from 1 to 20 units in November. UBS believes the 30 million KRW full cash margin requirement will significantly shrink retail participation, but the market has already undergone partial deleveraging—the total size of single-stock leveraged ETFs has fallen from the June 25 peak of about 2.4 trillion KRW to about 1.7 trillion KRW.

Goldman Sachs pointed out that although margin financing balances have declined from the peak of 3.8 trillion KRW to 3.3 trillion KRW, Korean investors’ deposit balances have risen to 11 trillion KRW, with the ratio of margin financing to deposits dropping significantly, thus limiting overall systemic leverage risk. On strategy, Goldman Sachs maintains its 12,000-point target, advising investors to buy on dips; UBS maintains a 9,200-point target and has shifted to a barbell strategy, adding defensive allocations such as consumer, healthcare, and construction, and removing cyclical and growth sectors that previously saw large gains. Both institutions acknowledge that Korean stocks are valued at extreme historical lows but employ different approaches to cope with short-term volatility and AI demand uncertainty.