Goldman Says July Kospi Slump Is Bull-Market Correction, Keeps 12,000 Target

Goldman Sachs described the Kospi's sharp decline after it broke above 9,000 in late June as a correction within a broader bull market and maintained its 12-month target for South Korea's benchmark index at 12,000. That implies upside of 81.87% from the Aug. 5 close of 6,598.26.

Timothy Moe and other Goldman Sachs strategy analysts kept an overweight rating on South Korean equities in an Aug. 4 report.

The market is pricing in a more negative fundamental outlook than is justified, Goldman wrote.

The Kospi has gained 116% this year. It closed at a record 9,114.55 on June 22, then dropped about 39% to 5,593.56 at its July 30 low. The index surged about 18% on July 31, marking its biggest one-day gain on record.

Goldman cited concerns about the durability of the semiconductor memory cycle as the immediate catalyst for the selloff. It added that technical factors amplified the decline.

Continued selling in single-stock leveraged exchange-traded funds was a key factor. Short-term momentum investors also contributed to the move. Goldman also pointed to signs of near-term overheating, with the relative strength index remaining above 80 in recent months.

A central pillar of Goldman's positive view is the memory sector, which accounts for a large share of the market's capitalization. Demand for computing is rising rapidly, and severe supply shortages could persist through 2030. Goldman believes the current memory cycle will be stronger than past cycles and last longer. It also said the sector's pricing power and profitability are not fully reflected in current market prices.

The bank said concerns about the memory cycle and the sustainability of hyperscaler capital spending are reasonable. Still, it said those issues do not undermine its base-case view of a longer and larger cycle.

Goldman also said market technicals have improved. Net assets in single-stock leveraged ETFs have fallen, margin-loan exposure has shrunk, regulations have been tightened and hedge fund exposure has eased. As a result, market positioning is much cleaner than before.

Goldman expects the index to rise as valuations rerate. The Kospi is currently trading at 5.1 times earnings. To reach the bank's target, the valuation would only need to rise to 7.8 times. That would still be below 8 times and well under previous market peaks.

Han Gyeong-u, Hankyung.com reporter case@hankyung.com