It was not until October 26, when the KOSPI pulled back to a seven-month low, that Goldman Sachs analysts finally changed their tune.
Since October, the South Korean stock market's performance has once again left investors on edge.
On October 26, the Korea Composite Stock Price Index (KOSPI) fell below 5,500 points, hitting its lowest close in about seven months, with foreign investors net selling nearly 700 billion won that day.
Two days later, the two major chip industry leaders that are heavyweight stocks in the KOSPI, Samsung Electronics and SK Hynix, successively released their third-quarter results.
On October 28, SK Hynix's preliminary third-quarter results showed operating profit exceeded 83 trillion won, a year-on-year increase of 632.1%, hitting a record high. Revenue reached 104.6155 trillion won, up 327.9% year-on-year; net profit reached 39.7756 trillion won, up 215.7% year-on-year.
On October 29, Samsung Electronics's third-quarter financial data showed operating profit of 107.44 trillion won for the quarter, a surge of 783% year-on-year, with revenue of 195.25 trillion won, up 127% year-on-year, also a record high.
However, the impressive third-quarter results of the two chip giants failed to boost the performance of the South Korean stock market.
On the last trading day of October, the KOSPI plunged immediately after opening, with the index decline once widening to 5%, after which the Korea Exchange triggered a "circuit breaker" procedure. That day, the KOSPI closed down 3.48%.
Goldman Sachs changes its tune
From June 19, when the KOSPI index hit a historical high of 9,385.59, to now having once fallen below 5,500 points, in just four months, the KOSPI index has dropped more than 35%.
At the beginning of the year, as the KOSPI index successively broke through the 5,000-point, 6,000-point and 7,000-point levels, international investment banks were bullish on the South Korean stock market and made bold predictions about the KOSPI's high point.
Among them, Goldman Sachs' research team had the most positive outlook on the South Korean stock market.
At the beginning of the year, Goldman Sachs set the KOSPI's target level for the end of 2026 at 6,400 points, with the judgment logic mainly based on a recovery in the semiconductor cycle and a repair in corporate earnings.
This expectation was subsequently raised repeatedly: in mid-March, in view of tight supply and demand for memory chips, especially the high operating leverage brought by soaring DRAM and NAND prices, Goldman Sachs raised its year-end forecast target from 6,400 points to 7,000 points, while also raising its forecast for South Korean corporate earnings growth this year to 130% — Goldman Sachs had already raised its forecast for South Korean corporate earnings for this year twice before.
In May, Goldman Sachs further raised its 12-month KOSPI target to 9,000 points.
On June 3, Goldman Sachs' team, citing "corporate earnings are driving Asian stock markets higher," and based on higher earnings expectations and conservative valuation assumptions, bet on the continuation of the AI memory cycle and raised its KOSPI target to 12,000 points, about 35% above the level at that time. This was also the most aggressive forecast for the KOSPI's future trend among many investment banks.
Afterward, volatility in the South Korean stock market intensified, with sharp single-day declines and intraday circuit breakers alternating, causing a large number of leveraged accounts to trigger margin calls and setting off a chain of forced liquidations in the market.
After July, the South Korean government immediately strengthened regulation in hopes of calming market turbulence.
In the third quarter, the South Korean stock market suffered a severe correction. Even as the KOSPI index fluctuated sharply and even entered a downward channel, Goldman Sachs did not adjust its expectations at the first opportunity.
On August 13, Goldman Sachs' team once again reiterated its 12,000-point target, and on October 16 it also said it would "stick to the bullish KOSPI 12,000-point target."
It was not until October 26, when the KOSPI pulled back to a seven-month low, that Goldman Sachs analysts finally changed their tune.
Goldman Sachs analysts said in a research report: "Out of risk-aversion operations, market concerns about the memory sector have spilled over to the entire market." The bank believes that the South Korean stock market is clearly oversold and cut its 12-month KOSPI target from 12,000 points to 9,000 points, a reduction of 25%.
Even so, Goldman Sachs still emphasized that this target level (9,000 points), compared with the level at the time the report was published (5,475 points), still implies more than 60% upside.
Is the South Korean stock market being viewed bearishly?
Does Goldman Sachs' recent rapid downgrade of its expectations for the South Korean stock market, and the limited role of the memory duopoly's earnings in boosting the KOSPI, mean that "the world's best-performing stock market in the first half" is being viewed bearishly by the capital market?
On this point, South Korean scholar Kim Yun-jun does not agree.
He still reiterated his previous view to Yicai: the decline is only the result of inflated valuations, and the KOSPI as a whole will return to a relatively reasonable valuation range.
Combined with Goldman Sachs' latest expectations, Kim Yun-jun said that Goldman Sachs' target level still implies about 60% upside compared with the stock market's actual level, indicating that Goldman Sachs has not turned "bearish" on the South Korean stock market, but has only "lowered its bullish expectations."
Goldman Sachs also gave its own reasons for this downgrade: market concerns about AI-related trades are intensifying.
Compared with Goldman Sachs' mid-year call of a 12,000-point high, the current capital market's outlook on AI trades has shown subtle changes. The returns on massive investment spending in the AI field and the sustainability of financing have become among the factors worrying the market.
The South Korean stock market closed lower on October 30, also dragged down by a sharp decline in U.S. technology stocks and concerns about AI investment returns.
Kim Yun-jun emphasized that although KOSPI volatility continues, the fundamentals of South Korean semiconductor companies have not collapsed. "The latest series of data shows that, affected by the AI-driven memory chip super-cycle, semiconductor exports remain strong."
South Korean government data show that in September, South Korea's exports continued to surge. After adjustment for working-day differences, September exports rose 104.9% year-on-year to $120.9 billion, a record high.
Semiconductors remain the main driver of South Korea's export growth. In September, chip exports surged 263% year-on-year to a record $60.3 billion. Computer exports rose 435%, petroleum product exports rose 72%, while automobile exports fell 5%.
As a result, South Korea's exports in the first nine months of this year also reached a record $814.5 billion, exceeding $800 billion for the first time.
Preliminary data released by the Bank of Korea on October 27 showed that South Korea's gross domestic product (GDP) grew 1.0% quarter-on-quarter in the third quarter, significantly faster than the 0.6% in the second quarter and also well above market forecasts.
Wall Street financial giant Morgan Stanley wrote in a previously released research report titled "Memory Chips: Distinguishing the Traditional Cycle from the Super-Cycle" that the unprecedented global AI boom is creating a memory chip super-cycle with stronger demand and a longer duration, but the inevitable traditional boom-bust cycle patterns of supply expansion, price changes and earnings fluctuations still exist.
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