Goldman Sachs Calls July Kospi Slump a Bull-Market Correction, Keeps 12,000 Target

Goldman Sachs said the steep selloff in the Kospi after the index topped 9,000 in late June was a correction within a bull market, and it maintained its 12-month target for South Korea’s benchmark stock index at 12,000. That is 81.87% above the Aug. 5 close of 6,598.26.

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

The market is pricing in a more negative fundamental outlook than is warranted, the bank wrote.

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

Goldman Sachs cited concern about the durability of the semiconductor memory cycle as the immediate trigger for the decline. It said technical factors also amplified the selloff.

Selling in single-stock leveraged exchange-traded funds added pressure. Short-term momentum investors also contributed to the drop. The bank also pointed to signs of short-term overheating, with the relative strength index staying above 80 in recent months.

A key pillar of Goldman Sachs's bullish view is the memory segment, which accounts for a large share of the market's capitalization. Computing demand is rising rapidly, and a severe supply shortage could persist through 2030. The bank said this memory cycle will be stronger than in the past and last longer. Strong pricing power and profitability are not fully reflected in current market prices, it wrote.

Goldman Sachs said concerns about the memory cycle and the sustainability of hyperscalers' capital spending are valid. Still, those factors do not undermine its base-case view of a large, extended cycle.

The bank also said market technicals have improved. Net assets in single-stock leveraged ETFs have declined. Margin-financing exposure has shrunk. Regulation has been tightened. Hedge fund exposure has also eased. As a result, market positioning is much cleaner than before.

Goldman Sachs said the index can rise further through a valuation rerating. The Kospi is now trading at 5.1 times earnings. To reach the bank's target, the valuation would need to rise to 7.8 times. That would still be below 8 times and remain well under past market peaks.

Han Kyung-woo, Hankyung.com reporter case@hankyung.com