KOSPI Valuation Reaches 20-Year Low; Goldman Sachs Maintains 12,000 Target

ME News reports that on July 19 (UTC+8), a global semiconductor sell-off coincided with a momentum reversal, causing the South Korean KOSPI index to decline nearly 25% from its June 22 high, with an additional 8.8% drop this week alone. As of July 16, the 12-month forward P/E ratio fell to 5.78x, below the trough level seen during the 2008 global financial crisis and reaching its lowest point since 2004. In its July 17 weekly report, Goldman Sachs conducted a stress test showing that even if earnings per share (EPS) were cut by 41%—the worst decline seen during the financial crisis—and valued at the 13x P/E ratio observed at the 2008 EPS trough, the KOSPI would still correspond to approximately 8,965 points, significantly higher than current levels, indicating that current valuations exhibit a positively skewed risk-reward profile. From a price-to-book perspective, the forward P/B ratio has fallen to 1.43x, while forward ROE remains high at around 25%, creating a rare divergence between the two metrics. UBS added that excluding Samsung Electronics and SK Hynix, the KOSPI’s overall forward P/E ratio stands at 8.79x, still below its historical average. Foreign investor flows have shown marginal shifts: this week, foreign investors turned net buyers of approximately KRW 19 billion, primarily flowing into automotive and retail sectors, while technology stocks continued to face net outflows of about KRW 76.6 billion. The won appreciated 1.2% against the U.S. dollar this week. However, Goldman Sachs’ Korea Equity Risk Radar reading remains at -2.7, still in the deep risk-off zone. On the regulatory front, the South Korean government has introduced a series of new rules targeting single-stock leveraged ETFs: starting August 5, cash margin requirements will rise from approximately KRW 3 million to KRW 30 million; starting August 19, alternative collateral will be prohibited, new product listings suspended, and marketing of existing products immediately halted; the minimum trading unit is planned to increase from 1 to 20 units effective November. UBS believes the KRW 30 million full-cash margin requirement will significantly constrain retail participation, but the market has already partially de-leveraged—the total size of single-stock leveraged ETFs has declined from a peak of approximately KRW 2.4 trillion on June 25 to about KRW 1.7 trillion. Goldman Sachs noted that although margin loan balances have fallen from a peak of KRW 38 trillion to KRW 33 trillion, household deposit balances have risen to KRW 110 trillion, resulting in a notably lower ratio of margin debt to deposits, suggesting limited systemic leverage risk. Strategically, Goldman Sachs maintains its target of 12,000 points and recommends accumulating on dips, while UBS retains its 9,200-point target and has shifted to a barbell strategy—adding defensive allocations in consumer goods, healthcare, and construction, while reducing exposure to previously strong cyclical and growth sectors. Both institutions agree that Korean equities are trading at historically extreme lows but differ in their approaches to near-term volatility and uncertainty surrounding AI demand. (Source: BlockBeats)