AI summary
Summary of article:
Goldman Sachs has cut its Kospi target for next year to 9,000 points due to concerns about excessive AI trading and excessive pessimism in the market, but it still believes Korean stocks are undervalued and remain attractive.
Goldman Sachs On the 25th, the group’s stock market strategist team lowered the target level of the Korean stock market by 25% in the next 12 months from 12,000 points to 9,000 points, mainly due to concerns that artificial intelligence (AI) trading in Korean stocks is too intensive.
The Goldman Sachs analyst team headed by Mu Tianhui lowered the target level of the Kospi index for the next year to 9,000 points, while the closing level of the index on the 23rd was 5,550.30 points, the upside probability has more than doubled to about 60%.
A more conservative approach to the Korean stock market
The Goldman Sachs analyst team said the Kospi index has fallen more than 35% from its peak in June, so it proposed a more conservative target. Due to this wave of selling pressure on the stock market, Korean stock prices have fallen significantly. Although the target has been revised downwards, there is still more than 60% scope for upside.
Goldman Sachs reported that “the market’s fundamental outlook (for Korean stocks) is overwhelmingly negative” and that the lower index target “covers some of the more conservative assumptions, but still believes that Korean stocks currently offer attractive risk/return rates.”
The last time Goldman Sachs raised its target price for Kospi was in June this year. Even though selling pressure on global AI stocks emerged in October, causing Korean stocks to decline, Goldman Sachs still maintained its target price of 12,000 points and has only now lowered its target.
The stock price performance of major memory chip makers such as South Korea’s Samsung Electronics and Hynix has made the Kospi index a barometer for AI trading. However, investors are concerned about whether AI companies can sustain heavy infrastructure expenditures. Financing costs in the AI industry are rising, and it is not clear whether companies can get adequate compensation by dragging down the Kospi index.
Think the market outlook is too pessimistic
South Korean stocks have turned from the world’s most dominant stock market to the world’s cheapest this year, with the average price-to-earnings ratio falling to about half that of the Indonesian stock market.
Based on projected earnings over the next 12 months, the price-to-earnings ratio of Kospi’s components has fallen to nearly four times.
Goldman Sachs estimates that the current low price-to-earnings ratio of semiconductor stocks means that chip stocks’ profits will decline by 65% in 2027. Goldman Sachs believes this scenario is too pessimistic. Nearly half of the constituent stocks in the Kospi index are non-memory chip stocks, and their price-to-earnings ratio is 7.6 times, based on projected profits over the next 12 months.
Goldman Sachs still prefers Korean stocks related to power, traditional industries, corporate governance and other stocks, as well as companies that could benefit from domestic economic expansion and the Korean Wave.
Summary FAQ
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Goldman Sachs is primarily concerned about the excessive concentration of AI trading in South Korean stocks and investor concerns about the AI industry’s spending and remuneration prospects. Therefore, it reduced its Kospi target for the next 12 months from 12,000 points to 9,000 points.
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Calculated based on the closing price of 5550.30 points on the 23rd, the target of 9000 points still represents about 60% room for upside. Although it has shrunk to more than double its original expectations, Goldman Sachs believes the risk rewards are still attractive.
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Goldman Sachs prefers stocks related to power, traditional industries and corporate governance, as well as companies that could benefit from the expansion of domestic demand in South Korea and the Korean Wave theme. He believes that these areas have relatively defensible and development potential.
