The Kospi index is the leading indicator for the global AI trade - and Goldman just slashed its forecast by 25%

By Jules Rimmer

It's not the earnings that's the problem; it's the multiple the market attaches to them

The Korean market has fallen 40% from its pak this summer. Goldman lops 25% off its target price but still argues it's a strong buy

The Korean equity market is a weathervane for sentiment in the global artificial-intelligence trade and a leading indicator for how investors interpret the growth prospects of America's biggest AI stocks. So, when Goldman Sachs slashes its target for the Kospi benchmark index by 25%, investors will need to sit up and pay attention as semiconductor stocks account for almost one-fifth of the S&P 500.

After a 40% decline in the index since its midsummer peak, Goldman Sachs took an axe to its 12-month Kospi KR:180721 forecast, chopping it from 12,000 to 9,000 in a note published Sunday night and lead-authored by its chief equity strategist for Asia, Tim Moe. Despite the cut in target, however, Moe stressed that he and his team are still very bullish on Korea's prospects and cite the 60% upside to the revised price objective.

Why is the Korean market so important for the AI trade? Samsung Electronics (KR:005930) and SK Hynix (KR:000660) are the two largest stocks, accounting for roughly half of the Kospi index, and between them they manufacture around two-thirds of the world's semiconductors.

The Korean memory chip stocks are viewed as the picks-and-shovels trade of the AI boom. Given the shortage of memory that many analysts and chief executives have highlighted, semiconductor pricing is a bellwether for the scarcity of supplies. If AI capex falls, it's in the semiconductor sector where the pinch will be felt first. This explains the recent weakness in the iShares semicondcutor exchange-traded fund SOXX as concerns about the sustainability of the cycle have emerged.

Korea's memory chip stocks are trading at record low forward price-earnings multiples

The reason Goldman Sachs cites for its target downgrade is not a decline in earnings. It is, Moe points out, "to incorporate more conservative assumptions about how the market may price underlying fundamentals." In other words, it's not the earnings that's the problem, it's the multiple that investors attach to those earnings.

The Korean market's slump is not just a function of less confidence in the AI capex cycle. It's also attributable to an immensely painful derisking and deleveraging process among domestic retail investors who had been riding the stock market's blistering rally throughout 2025 and the first half of 2026. Once the market began to fall, the army of what are called "ants" began to suffer margin calls and were forced to liquidate exposure.

The resultant volatility has led analysts to attach a much higher equity risk premium to Korean stocks and Moe maintains this explains roughly half of the Kospi's 40% drop.

An increase in volatility has led to an increase in the equity risk premium - a key component of stock valuation - that analysts attach to Korean stocks

The plunge in share prices means Goldman Sachs now values the market at just four times the next 12 months of earnings. This is, by their analysis, three standard deviations cheap, a measure of its extreme divergence from historical pricing. Even if the market were to rally to the Goldman target of 9,000 it would still only trade at 6.5 times next-12-months' earnings, and with an average return on equity of 23% for Korean corporates, this would imply the market is still 20% undervalued, according to Moe.

Aside from the memory chip heavyweights, Moe also finds several other sectors appealing. He recommends industrials, financials, construction plays and department stores. Meanwhile, those companies improving corporate governance as part of Korea's value-up program are also in focus.

In pre-market trading Monday, the iShares MSCI South Korea ETF EWY was fractionally higher at $151.29 and SK Hynix Nasdaq-listed depositary receipts (SKHY) were 2.54% better at $140.58.

-Jules Rimmer

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