Goldman Sachs lowered its target price for South Korean stocks by 25%, but believes that "storage valuations are too pessimistic," and that South Korean stock valuations have become "the lowest in the world."

Goldman Sachs significantly lowered its target price for South Korean stocks, but warned that the market's pessimistic pricing of the semiconductor industry has deviated significantly from fundamental reality.

According to a Bloomberg report on October 25, Goldman Sachs strategists lowered their 12-month target price for the Korea Composite Index (KOSPI) from 12,000 points to 9,000 points last Friday (October 23), a decrease of 25%. This adjustment occurred against the backdrop that the KOSPI has fallen by more than 35% since its June high. Nevertheless, Goldman Sachs maintains a positive stance on the South Korean stock market, pointing outThe revised target price still implies an upside potential of over 60% compared to the current level.It also clearly stated that "the market is pricing in an overly pessimistic fundamental outlook."

The sell-off in technology stocks triggered by the decline in AI trading has dragged South Korea from one of the world's hottest major markets this year into the abyss of the lowest valuation. According to data compiled by Bloomberg, the KOSPI 12-month forward P/E has fallen to about four times, an extremely low level not seen in any of the 18 trillion-dollar markets since 2006.The valuation is about half that of Indonesia's Jakarta Composite Index (8 times P/E).。 At the same time, some investors believe thatThe sell-off has created a rare buying opportunity。

The decline in AI trading has severely impacted South Korean stocks, forcing Goldman Sachs to significantly lower its targets.

It is worth noting that Goldman Sachs has raised its target price multiple times this year, with the most recent increase occurring in June, and has maintained its 12,000-point target amid the subsequent global sell-off in AI stocks. This downgrade marks a significant shift in Goldman Sachs' assessment of the South Korean market.

Samsung ElectronicsandSK HynixChip giants have made KOSPI a barometer of AI trading.Investors' concerns about the sustainability of large-scale spending on AI infrastructure continue to rise, and coupled with rising financing costs and insufficient return signals, selling pressure has spread from the technology sector to the entire South Korean market.

Memory chip valuations imply a "65% profit plunge," and Goldman Sachs believes the pricing is too extreme.

Goldman Sachs estimates that current valuations in the semiconductor sector imply an expectation that the industry's profits will decline by 65% in 2027.—This scenario is considered "too pessimistic" by Goldman Sachs. The report points out that the market is pricing in an "overly negative fundamental outlook," and the revised target price is only to incorporate more conservative market pricing assumptions and does not reflect Goldman Sachs' substantial bearish view on fundamentals.

Apart from the memory chip sector, other stocks, which account for about half of the index's weighting, are currently trading at 7.6 times forward P/E, and their valuations are also at historical lows. Goldman Sachs said the South Korean market still offers "attractive risk-reward" at current levels.

Goldman Sachs remains bullish on stocks related to power, industrial, and corporate governance improvement, as well as companies that benefit from domestic reflation and Korean Wave culture.

Valuations have fallen to "global lows," and South Korean stocks are now half the price of Indonesian stocks.

In contrast, the Indonesian Jakarta Composite Index, which is also facing a possible two-notch downgrade by MSCI and questions about its market investability, still maintains its forward P/E at around 8 times.South Korea's stock market valuation is less than half that of Indonesia.

This valuation collapse occurred against a backdrop where South Korea's macroeconomic fundamentals are not pessimistic.South Korea's exports are expected to exceed $1 trillion this year, with strong demand for chips; The Bank of Korea also said that economic growth this year and next should be "significantly higher" than previously forecast. However, market concerns about the memory chip cycle, the prospects for AI capital expenditures, and rising borrowing costs have kept investor sentiment low.

ACG Management Managing Director Hui Ling Loh said,

"Concerns about aggressive AI investments to date have grown further, enough to offset robust earnings and performance guidance. Investors are also weighing the impact of rising borrowing costs on AI-related stocks and the impact on demand for safe-haven assets."

Some investors see the sell-off as a buying opportunity, but disagreements remain.

The KOSPI has fallen by about 40% since its June high, but its 12-month forward earnings forecast has risen by 22% during the same period, further highlighting the extremely low valuation of the stock price and earnings expectations. The index has still risen by 31% year-to-date.

Julius BaerMark Matthews, head of Asian research, said,AI demand "still significantly exceeds supply," "so when we see such a sharp correction recently, especially the overnight plunge in semiconductor stocks, it's a good buying opportunity."

However, market opinions differ on when sentiment will truly bottom out and whether valuations can become a reliable reversal signal. This round of sell-off has also sparked deeper discussions:In an era of profound uncertainty brought about by technological change, can traditional valuation indicators still provide reliable investment guidance?