Under a fierce selloff in technology shares, South Korea's stock market has slumped from this year's top-performing major market to a global valuation laggard, trading at roughly half the valuation of Indonesia.
Data shows the KOSPI's 12-month forward price-to-earnings ratio has fallen to about 4 times. Among the 18 markets that exceeded US$1 trillion in market capitalization at the start of this year, this valuation level is the lowest seen since 2006. Meanwhile, the Jakarta Composite Index trades at a P/E of 8 times; Indonesia also faces a warning from MSCI that its market classification could be downgraded in two steps, with questions also raised about its market investability.
Earlier this year, chip leaders drove a sharp rally in Korean stocks, after years in which local investors had complained about persistently sluggish market valuations. This selloff serves as a reminder that anxiety surrounding AI can quickly reverse sentiment in tech-heavy markets. It also raises a question: at a stage when major technological change brings uncertainty, are traditional valuation metrics still reliable?
ACG Management Managing Director Hui Ling Loh said: "Market concerns over earlier aggressive AI spending have further intensified, overshadowing solid earnings and guidance. Beyond demand for safe-haven assets, investors are also assessing the impact of high financing costs on AI-related stocks."
Despite robust chip demand, with Korean exports on track to surpass US$1 trillion this year, and the central bank saying economic growth this year and next will be significantly higher than previously expected, KOSPI valuations remain unusually cheap. Even so, doubts over the memory chip cycle, AI capital expenditure and high interest rates have not dissipated, keeping investors cautious, with views divided on when sentiment will turn.
For some investors, this decline offers a potential buying window. The KOSPI has fallen about 40% from its June high, while 12-month forward earnings estimates have been revised up 22% over the same period; the index is still up 31% year to date. Julius Baer head of Asia research Mark Matthews said AI demand still far exceeds supply. "So when the semiconductor sector sees such a sharp pullback, like in recent days, especially overnight, it's a good buying opportunity."
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