[TMGM Financial Recap] Goldman Sachs Contradicting Itself? Bank Cuts KOSPI Target to 9,000 While Calling the Market “Overly Pessimistic”

On October 25, Goldman Sachs’ strategy team led by Timothy Moe lowered its 12-month target for South Korea’s KOSPI index from 12,000 to 9,000, a 25% reduction. It was the bank’s first substantial downward revision after raising its target several times this year.

Yet the same report contained a statement that appeared to contradict the target cut: “The market is pricing in an overly pessimistic fundamental outlook.” Goldman explicitly said the reduction incorporated “more conservative market valuation assumptions,” rather than reflecting a materially bearish view of fundamentals.

What Does a P/E Ratio of Four Mean?

The KOSPI’s 12-month forward price-to-earnings ratio has fallen to approximately four times. Bloomberg-compiled data put the figure more precisely at 4.2 times, making it the first trillion-dollar equity market to fall below five times forward earnings in records dating back to 2006.

Among the 18 markets tracked by Bloomberg that began the year with market capitalizations above $1 trillion, no benchmark index had previously traded below five times forward earnings—until the KOSPI broke that record.

Indonesia offers a more tangible comparison. The Jakarta Composite Index trades at approximately eight times forward earnings, meaning the KOSPI’s valuation is roughly half that level. Many investors already regard Indonesian equities as synonymous with a cheap market, yet South Korea is trading at about half that valuation.

It is important to emphasize that the four-times multiple applies to the index as a whole. The KOSPI is highly concentrated: Samsung Electronics and SK Hynix together accounted for more than 50% of its weighting at one point. The index’s exceptionally low P/E ratio is largely driven by the extremely low valuations of these two semiconductor giants.

According to Goldman’s estimates, current valuations in South Korea’s semiconductor sector imply that the market is already pricing in a 65% collapse in industry earnings in 2027.

A 65% earnings decline represents far more than slowing growth; it approaches the scale of a deep recession. The market is treating the worst-case semiconductor scenario—collapsing demand, plunging prices, and profits repeatedly cut in half—as its baseline. Goldman considers that assumption excessively pessimistic.

An easily overlooked detail supports Goldman’s assessment. Stocks outside the memory-chip segment account for approximately half of the KOSPI’s weighting and trade at 7.6 times forward earnings. Excluding memory giants such as Samsung Electronics and SK Hynix, the KOSPI trades at approximately 8.4 times forward earnings, placing it in the 11th percentile of its historical valuation range.

A valuation of around eight times earnings is still cheap, but far less extreme than four times. The index’s overall multiple has been dragged down by pessimistic pricing in the semiconductor sector.

Share Prices Are Falling While Earnings Forecasts Rise

Goldman’s assessment of excessive pessimism rests on evidence stronger than valuation alone: share prices and earnings expectations are moving in opposite directions.

In an October 20 report, JPMorgan noted that Samsung and SK Hynix shares had suffered heavy losses, even as forward earnings forecasts for both companies continued to rise during October’s correction. This divergence extends beyond memory chips. Earnings expectations for industrials, financials, and healthcare have also continued to improve, although share price declines in those sectors have been relatively smaller.

Meanwhile, Bank of Korea Governor Hyun Song Shin said publicly on October 22 that investors should focus on chip prices themselves rather than chipmakers’ share prices. Chip prices, he said, showed no signs of falling and could rise further. Citing customs data, he projected that South Korea’s total exports would exceed $1 trillion this year, with the current account surplus reaching $450 billion.

South Korea’s finance ministry offered a similar assessment in an October 16 statement. Strong growth expectations, a current account surplus, and improving corporate earnings indicated that equity market fundamentals remained solid. Regulators said the scale of market declines and capital flows “may have reflected an overreaction” to factors including rising global interest rates and uncertainty surrounding investment in AI semiconductors.

Share prices are falling, earnings are rising, and exports are strengthening. Taken together, these developments suggest that the sell-off is being driven by fund flows rather than fundamentals. Cheap valuations have failed to translate into buying because the sources of demand supporting the market have disappeared simultaneously.

Foreign investors are withdrawing. Between October 1 and 20, foreign investors sold a net KRW 18.115 trillion in KOSPI shares. Samsung Electronics and SK Hynix together accounted for approximately KRW 14 trillion, nearly 80% of the total. On October 12 alone, net foreign selling approached KRW 2 trillion, while cumulative foreign outflows over the past month exceeded KRW 29.7 trillion.

Share buybacks are winding down. Corporate buybacks have been the main source of support for South Korean equities since late August 2025. Samsung has now completed its program, while SK Hynix is approaching the end of its own. This crucial source of buying demand is fading.

Leveraged positions remain an overhang. Despite the substantial sell-off, holdings in leveraged ETFs remain elevated. JPMorgan described outflows from these products as “surprisingly limited,” while outstanding leveraged positions continue to generate mechanical selling pressure on days of sharp declines. Another wave of selling cannot be ruled out until this leverage overhang has been substantially cleared.

JPMorgan’s conclusion is that valuations and technical indicators are sending strong signals to buy the dip, yet marginal buyers are rapidly disappearing. With Samsung and SK Hynix winding down buybacks, foreign investors continuing to sell, and domestic institutional demand remaining weak, the market has lost its most important sources of buying support precisely when it needs them most.

Conclusion

The target cut is a technical, reactive adjustment. The KOSPI has fallen more than 35% from its June peak and closed last Friday at 5,550. With sentiment already at an extreme, Goldman has chosen to align its valuation assumptions with prevailing market conditions rather than maintain the optimistic assumptions underpinning its previous 12,000 target. In the bank’s own words, it is incorporating “more conservative market valuation assumptions.”

The assessment of excessive pessimism is an analytical judgment. Goldman believes that the implied assumption of a 65% collapse in semiconductor earnings in 2027 is unjustified: the market has treated an extreme scenario as its baseline.

The distinction is that the target reduction acknowledges market sentiment, while the assessment of excessive pessimism reflects a view on fundamentals. Even after the cut to 9,000, the revised target still implies more than 60% upside from the current level of 5,550.

Goldman is not saying that the KOSPI will fall to 9,000. It is setting a 12-month target of 9,000 under conservative assumptions—a level substantially above the current market.

Goldman also identified specific investment preferences. It remains positive on power-related stocks, industrials, companies linked to corporate governance reform, and businesses benefiting from domestic reflation and the global popularity of Korean culture. These themes share a common feature: they do not depend exclusively on the assumption that AI capital expenditure will continue expanding indefinitely.

The KOSPI’s four-times P/E ratio is a real price signal, reflecting the market’s assessment of a worst-case AI semiconductor cycle. But the central message of Goldman’s report goes beyond the observation that four times earnings is cheap. The implied 65% earnings collapse is inconsistent with the direction of export data, chip prices, and upward earnings revisions.

The problem facing South Korean equities is that three sources of buying demand—foreign capital, corporate buybacks, and leveraged funds—are retreating simultaneously, pushing an index heavily concentrated in semiconductors into a liquidity vacuum.

By cutting its target to 9,000, Goldman acknowledges the weight of these fund-flow conditions. By simultaneously calling the market overly pessimistic, it argues that the decline in prices has exceeded what fundamentals can explain.

As for when a valuation recovery might begin, neither Goldman nor JPMorgan has provided a timetable. JPMorgan offered only one condition: until the leverage overhang is materially reduced and volatility subsides, systematic buying is unlikely to gather sufficient momentum.

What a four-times P/E ratio is waiting for is a marginal buyer willing to step in.