Goldman Sachs Strongly Endorses Korean Stocks: Reaffirms KOSPI Target of 12,000 Points, Bullish on AI and Memory Chips

Due to a pullback in artificial intelligence (AI)-related stocks, South Korea's KOSPI index plunged over 22% in July, frequently triggering circuit breakers. However, Goldman Sachs continues to firmly maintain its 12,000-point target for the KOSPI index, suggesting the market still has approximately 80% to 90% upside potential.

Tim Moe, Goldman Sachs' Chief Asia-Pacific Equity Strategist, cited a "stronger and longer" earnings cycle as the foundation of his confidence in the Korean market. Goldman believes current market pricing fails to reflect the severe shortage of memory chips, which could persist until 2030. As AI computing demand accelerates, semiconductor firms such as Samsung Electronics and SK Hynix—accounting for over 50% of KOSPI's weight—will become global profit engines.

According to Goldman's forecast, Korean equities are expected to see earnings grow by 32% this year and 35% next year. Currently, Korean stocks trade at just 5.1 times expected earnings, nearly two standard deviations below historical norms. The 12,000-point target corresponds to only 8 times the expected earnings in 2028.

Goldman attributes the recent sharp decline in Korean stocks primarily to the collapse of retail investors' leveraged positions. Assets under management in Korean leveraged ETFs plummeted from a peak of $53 billion in June to just $14 billion, while margin loan balances also sharply declined. With forced liquidations among retail investors and regulators tightening leverage rules, market positions have become "much cleaner," laying the groundwork for a future rebound.

In addition to semiconductors, Goldman highlights the defense industry as a second pillar for Korean equities. For investors, the U.S.-listed EWY is highly concentrated in Samsung and SK Hynix (combined weighting of 54.74%), making it the purest play on Goldman's chip strategy. In contrast, FLKR offers broader exposure, covering defense, aerospace, finance, and biotech sectors, reflecting South Korea's wider industrial strength.

Goldman emphasizes that despite short-term volatility, as long as Samsung and SK Hynix deliver on earnings expectations, Korean stocks will return to an upward trajectory once market sentiment stabilizes.