After KOSPI's sharp drop, valuation has reached historical lows, and Goldman still sees broader opportunities in the second half

Overview

This report is Goldman Sachs' weekly strategy update on the Korean market, focusing on KOSPI valuation, earnings revisions, flows, macro indicators, and technicals after the index's notable pullback. It notes that KOSPI fell nearly 20% from its June high and about 8% this week, but the forward P/E has reached a multiyear low since 2004; at the same time, Samsung Electronics' 2Q26 preview showed better-than-expected core operating profit, with strong DRAM profits offsetting weakness in smartphone demand. Goldman argues that while volatility may remain elevated and foreigners are still selling the tech segment, Korean equities still offer decent medium-term risk/reward supported by valuation and earnings.

Core views

Goldman's core thesis is: first, much of the pessimistic expectation is already embedded in valuation, with KOSPI's 6.2x forward P/E and South Korea's largest semiconductor company at 4.8x forward P/E both in a long-term extreme-low range; second, earnings fundamentals remain resilient, with KOSPI's 12-month forward EPS revised up 1.4% this week, and sectors such as tech hardware, industrials, materials, and insurance potentially continuing to see meaningful revisions; third, market opportunity in H2 26 may be broader, no longer limited to AI-related tech hardware and semiconductors, with preferred structural themes including industrials, power infrastructure, energy security, corporate governance, reflation beneficiaries, and the semiconductor capex supply chain; fourth, ERLI still shows positive regional earnings momentum, but slowing manufacturing expansion and a deceleration in DRAM price growth suggest the pace of upward revisions may slow.

Analysis framework

The report uses a multidimensional framework combining market performance, forward valuation, EPS revisions, sector relative returns, flows, FX and rates, macro forecasts, and Goldman Korea Equity Risk Barometer. It assesses post-correction bottoming characteristics and upside potential by comparing valuation percentiles over history, global financial crisis and historical earnings troughs, index target scenarios, sector earnings revisions, foreign versus local investor flows, and leading variables such as manufacturing PMI, exports, and DRAM prices.

Methodology notes

• Valuation methodsForward P/E historical comparison

  Compare KOSPI and major sectors' current 12-month forward P/E against the historical range since 2004 or since 2006.

  KOSPI's current forward P/E is 6.2x, at a post-2004 low; the 12-month and 24-month forward P/E excluding the top two stocks are 10.1x and 8.6x respectively, used to assess whether market valuation is overly discounted.

• earningsEarnings Revision Leading Indicator (ERLI)

  Use leading variables such as manufacturing activity, exports, DRAM prices, and changes in market earnings estimates to judge the direction of future earnings revisions.

  ERLI shows regional earnings momentum remains positive, but due to manufacturing PMI expansion slowing and DRAM price growth easing, Korean earnings revisions may continue but at a slower pace.

• flowsInvestor flow analysis

  Track net buying and selling by foreign, institutional, retail, and pension investors across KOSPI and KOSDAQ, and break flows down by sector.

  This week, foreign investors were net sellers of about KRW 4,116bn in KOSPI, largely driven by outflows from the KOSPI tech sector; retail investors were net buyers of about KRW 3,683bn.

• riskKorea Equity Risk Barometer

  Measure market risk appetite using Goldman Korea stock risk barometer.

  The latest GSSRKERB Index is -1.0, still in a risk-avoidance range, indicating that short-term sentiment has not fully recovered.

• Macroeconomic frameworkMacro and market outlook

  Combine GDP, exports, CPI, policy rates, USDKRW, and KOSPI targets to assess Korea's asset backdrop.

  The report shows 2026 Korean real GDP growth of 2.7%, policy rate of 3.00% by year-end 2026, USDKRW 1,476, and a 12-month KOSPI target of 12,000.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• KOSPI

  Core benchmark index and main positioning instrument

  Strengths

  Forward P/E has fallen to a low 6.2x, 12-month forward EPS is still being revised up, and Goldman maintains a 12,000 target, indicating substantial upside.

  Weaknesses

  KOSPI has fallen nearly 20% from its June peak and about 8% this week; the risk barometer remains in the risk-off zone.

  Comparison

  Valuation is lower than most peers in global and Asia regions, and lower than some valuation levels during the 2008 financial crisis.

  Risks

  Persistent foreign outflows, slowing manufacturing momentum, weakening DRAM price growth, and sustained high market volatility.

• Samsung Electronics

  Korea's largest semiconductor company and a key anchor for KOSPI valuation and earnings assessment

  Strengths

  2Q26 core operating profit beat expectations with strong DRAM profits; Goldman’s tech team raised 2026E/2027E/2028E EPS estimates by 0.2%/3.7%/4.4%.

  Weaknesses

  Smartphone business is weak, and the tech sector faces foreign outflows and relative weakness this week.

  Comparison

  Forward P/E has fallen to 4.8x, a low since 2000.

  Risks

  DRAM price growth deceleration, pullback in crowded AI hardware trades, and weak smartphone demand.

• KOSPI Tech

  Major earlier driver of market gains and current source of flow pressure

  Strengths

  AI-related tech hardware and semiconductors remain a structural theme with strong earnings contribution.

  Weaknesses

  Tech fell 9.4% this week, and the bulk of foreign selling was driven by tech sector outflows.

  Comparison

  Still delivered a large YTD gain, but has underperformed banking, telecom, and chemicals in the near term.

  Risks

  Valuation volatility, foreign de-risking, weaker DRAM price momentum, and a softer manufacturing PMI.

• Banking

  Relatively strongest sector this week

  Strengths

  Up 3.0% this week, one of the best-performing sectors in KOSPI.

  Weaknesses

  Earnings and multiples are sensitive to rates, macro conditions, and credit cycle

  Comparison

  Significantly outperformed KOSPI, which fell 7.6% this week.

  Risks

  Changes in the rate path, rising credit costs, and macro slowdown.

• Telecom

  Defensive relative outperformer

  Strengths

  Up 2.5% this week, holding up well during the pullback.

  Weaknesses

  Growth potential is generally weaker than in tech and cyclical sectors.

  Comparison

  Outperformed KOSPI and most cyclical industries this week.

  Risks

  Regulatory, competitive, and capex pressures.

• Machinery

  Relatively weak and softer earnings-revision sector this week

  Strengths

  May still benefit from industrial and capex-related themes.

  Weaknesses

  Down 6.6% this week, and the report says machinery had the largest earnings downward revision.

  Comparison

  Lagged behind banks, telecom, and chemicals, which were more resilient.

  Risks

  Order-cycle uncertainty, manufacturing slowdown, and further downward earnings revisions.

• KRW

  A key macro variable for Korean asset risk appetite and foreign flows

  Strengths

  Appreciated 1.6% against USD this week, 1.8% against JPY, and 1.6% against EUR.

  Weaknesses

  USDKRW is still around 1,505, and KRW remains under pressure year-to-date.

  Comparison

  Short-term appreciation helps ease market pressure, but currency interpretation still needs to consider rate differentials and flow dynamics.

  Risks

  USD strength, shifts in Korea-US spread, and continued foreign outflows.

Key data

• KOSPI weekly performance-7.6%Table shows the KOSPI price at 7,475.94, with a weekly drop of 7.6%.
• KOSPI forward P/E6.2xAs of July 8, 2026, it reached the lowest level since 2004.
• Samsung Electronics forward P/E4.8xKOSPI's largest semiconductor company's forward P/E has fallen to the lowest level since 2000.
• KOSPI 12-month forward EPS revision+1.4%KOSPI 12-month forward EPS was revised up this week; securities had the strongest upward revision, while machinery had the largest downward revision.
• KOSPI 12-month target12,000The macro and market outlook table sets KOSPI's 12-month target at 12,000 for 2026.
• Current KOSPI level7,475.94KOSPI price from the weekly performance table.
• Implied upsideabout 60.5%Estimated from the 12,000 target versus the current KOSPI level of 7,475.94.
• KOSPI foreign flow-4,116 billion KRWNet foreign outflow from KOSPI this week, with one-week flow at -0.6 standard deviations.
• KRW vs USD weekly change+1.6%The report says KRW appreciated 1.6% against USD this week, and also 1.8% against JPY and 1.6% against EUR.
• Korea Equity Risk Barometer-1.0Still in the risk-aversion range.
• KOSPI valuation excluding top two stocks12 months 10.1x; 24 months 8.6xEven after removing the top two companies, Korean valuations remain low relative to most regional markets.
• Proportion below book valueover 70%The report says more than 70% of KOSPI companies still trade below book value.

Impact & implications

The investment implication of the report is constructive. In the short term, KOSPI remains in a risk-avoidance environment and foreign investors are still selling, so volatility may stay elevated. In the medium term, however, the combination of historically low valuation, semiconductor earnings resilience led by Samsung, KOSPI earnings upgrades, and a 12-month target of 12,000 points to a favorable risk/reward profile. From a positioning perspective, the report suggests investors can expand beyond a single AI/semiconductor theme to broader ones, including industrials, power infrastructure, energy security, corporate governance, reflation beneficiaries, and the semiconductor capex supply chain, while monitoring whether easing manufacturing momentum weakens earnings upgrades.

Risks

• Foreign investors continue to sell KOSPI, especially in technology, which could cap a near-term rebound.
• Korea Equity Risk Barometer at -1.0 indicates markets remain in a risk-avoidance zone.
• Slowing manufacturing PMI expansion and weaker DRAM price growth could slow the pace of earnings upgrades in Korea.
• KOSPI has pulled back nearly 20% from its recent peak, so short-term volatility may remain elevated.
• Although Samsung core operating profit beat expectations, weak smartphone demand remains a drag on the profitability mix of the semiconductor leader.
• If a repeated scenario of historical earnings downgrades re-emerges, the current constructive target may face pressure from estimate revisions.

What to watch

• Whether KOSPI can stabilize and confirm a base around a 6.2x forward P/E.
• Whether foreign net outflows from KOSPI and KOSPI Tech slow or turn net inflows.
• Samsung Electronics' official 2Q26 results and DRAM profit trend.
• Whether KOSPI's 12-month forward EPS continues to be revised up, especially in tech hardware, industrials, materials, insurance, and securities.
• Whether manufacturing PMI, Korean exports, and memory chip prices support ERLI staying positive.
• The KRW/USD path and changes in the Korea-US 10-year yield spread.
• Technical indicators such as the Korea Equity Risk Barometer, VKOSPI, and the proportion of components above the 200-day moving average.