The South Korean stock market is going through one of its most severe consecutive declines in recent years, but Goldman Sachs analysts believe the root cause of this selloff lies in a structural absence of buyers rather than a collapse in fundamental demand. With valuations having fallen to historically extreme low percentiles and the earnings cycle yet to reverse, the sell side is maintaining its one-year KOSPI target of 12,000 points.
According to a trading desk report, Goldman Sachs' Asia equity sales and trading desk stated in its latest report that the KOSPI had previously fallen for seven consecutive trading sessions, with a maximum cumulative decline of roughly 20%, at one point triggering a circuit breaker during intraday trading. The magnitude of this decline has only been matched in the past 20 years by the March 2020 COVID-19 shock (-20.5%) and the August 2011 U.S. credit rating downgrade (-15.1%). Meanwhile, foreign investors were net sellers for eight consecutive trading sessions, with net selling in the technology sector reaching $11.6 billion over those eight sessions, while the KOSPI as a whole saw net selling of $13.4 billion, of which technology accounted for 86%.
However, Tim Moe, Goldman Sachs' chief Asia-Pacific equity strategist, stated that the risk-reward profile for Korean stocks remains favorable, maintaining the 12-month KOSPI target of 12,000 points and expressing high confidence in the long cycle for AI hardware. Goldman's target implies roughly 110% upside from the KOSPI's current level of 5,700 points. Analysts noted that current valuations are at extremely low levels, with a forward price-to-earnings ratio of 5.1 times, which is 2.7 standard deviations below the mean, and a price-to-book ratio of 1.8 times corresponding to a 26% 24-month forward ROE. The earnings growth trajectory also supports the medium-term bullish thesis.
Where the Selling Pressure Comes From: Corporate Buyback Withdrawal Combined With Concentrated Foreign Selling
The direct trigger for this decline was the targeted withdrawal of corporate buyback support. According to Chris Cha of Goldman Sachs' Asia equity sales and trading desk, Samsung Electronics completed its share buyback program on October 6, and SK Hynix also gradually wrapped up its end-of-session buying operations. The exit of buyback support from both companies left the market without an important source of price support during a critical time window.
Against the backdrop of an absence of domestic buyers, concentrated foreign selling directly broke through multiple psychological thresholds and triggered a chain reaction of forced liquidations. According to Goldman Sachs' Asia equity sales and trading desk, approximately 80% to 87% of foreign selling was concentrated in the two memory-heavyweight stocks, Samsung Electronics and SK Hynix. This highly concentrated selling structure means that the selling pressure did not stem from a repricing of overall demand prospects for the Korean market, but rather from liquidity-driven behavior by specific institutions within a specific time window.
From a timeline perspective, the withdrawal of buybacks, foreign selling, and forced liquidations overlapped during the same period, forming a classic "buyer's vacuum" market condition 鈥?prices fell not because selling forces were unusually strong, but because the absorbing bids developed a brief yet severe structural gap.
Valuations and Earnings: Do the Bullish Arguments Hold Up
The medium-term bullish thesis of Goldman Sachs' Asia equity strategy team rests on two mutually reinforcing pillars: extremely low valuation percentiles and a rapidly recovering earnings path.
On the valuation front, the KOSPI's forward price-to-earnings ratio stands at 5.1 times, which is 2.7 standard deviations below its historical mean. The price-to-book ratio of 1.8 times corresponds to a 26% 24-month forward ROE, and the match between the price-to-book ratio and earnings return rate suggests that current pricing does not fully reflect the recovery potential of the earnings cycle.
On the earnings front, Goldman Sachs' Asia equity strategy team forecasts earnings growth for the Korean market of 320%, 35%, and 20% for 2026 through 2028, respectively. The core driver of this trajectory is the AI hardware demand cycle, with Samsung Electronics and SK Hynix, as major global suppliers of memory chips, directly benefiting from the continued expansion of data center capital expenditure.
It is worth noting that the Korean won exchange rate also constitutes an important variable in the earnings path. According to Goldman Sachs' emerging markets strategy team, Samsung and SK Hynix need to maintain a 70% to 80% conversion ratio of trade surplus foreign exchange into local currency to cover local won-denominated expenditures such as taxes, capital expenditure, shareholder returns, and employee cash compensation. This conversion demand exerts continuous downward pressure on USDKRW. Bank of Korea Governor Shin also stated that further appreciation of the Korean won would help boost household purchasing power and reiterated that the central bank will maintain a restrictive monetary policy stance until inflation converges to the target level.
Three Risks: Which One Materializes First
Tim Moe explicitly listed the following three as trackable monitoring risks rather than drag factors in the base-case scenario, but if any one of these conditions deteriorates materially, the 12,000-point path would need to be reassessed.
Memory cycle durability is the foremost risk. The current bullish thesis relies heavily on sustained AI hardware demand driving memory chips. If HBM or DRAM demand shows signs of peaking, the earnings growth trajectory would face direct downward revision pressure.
Retail leverage and the stock of leveraged ETFs represent the second risk. If retail deleveraging shifts from its current orderly state to a stampede-style liquidation, it would add a new source of selling pressure on top of foreign selling, further suppressing the pace of market recovery.
Competition from Chinese open-source AI models is the third risk. If Chinese open-source models continue to gain market share and suppress the willingness of global hyperscale cloud providers to increase computing capital expenditure, it would weaken shipment expectations for memory chips from the demand side, undermining the fundamental assumptions of the entire earnings growth trajectory.
Goldman Sachs flagged two near-term dates to watch. On October 27, SK Hynix will report third-quarter results, giving the market an opportunity to assess the actual strength of memory demand and management's latest judgment on cycle durability. From November 18 to 20, Samsung Electronics will make dividend payments of approximately 40 trillion Korean won, at which point foreign exchange conversion demand will provide temporary support for the Korean won exchange rate, and it will also be an important window to observe whether foreign net selling is converging.
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