Goldman maintains overweight on KOSPI: deep valuation compression and earnings upgrades suggest the market may have bottomed

Overview

This report is Goldman Sachs' weekly strategy update on the South Korean stock market, focusing on whether KOSPI has already bottomed amid persistent volatility, significant valuation compression, and upward revisions to earnings expectations. The report notes that KOSPI fell 1.1% this week, and March saw nearly a 20% peak-to-trough decline due to uncertainties including Middle East conflict, but forward P/E has compressed to the lowest level since 2009. At the same time, technology exports, the memory-price cycle, and the ERLI indicator still point to earnings upgrade momentum.

Core views

The core view is that, although geopolitical uncertainty and foreign outflows are keeping Korean market volatility elevated, KOSPI valuations are already in an extremely compressed range and the earnings revision cycle has not ended, supported especially by technology exports and improving memory prices. Goldman believes the market may already have bottomed and keeps its overweight stance on KOSPI with a 7,000 target. At the sector level, steel, construction, and technology outperformed this week, while utilities, brokerage, and leisure lagged. On earnings revisions, chemicals saw the strongest upgrades, while leisure had the largest downgrades.

Analysis framework

The report evaluates the market by combining performance, valuation percentile, earnings revisions, fund flows, FX, and risk indicators. The valuation analysis compares KOSPI forward P/E with historical lows and estimates potential downside using an assumption of a 30% earnings downgrade and an 11x trough valuation. The earnings analysis uses ERLI, technology exports, US and Korean manufacturing activity, and memory-price expectations to assess the direction of future earnings revisions.

Methodology notes

• Valuation framework12-month forward P/E

  Compare KOSPI forward P/E with its historical average and crisis lows to judge the degree of valuation compression.

  The report says KOSPI forward P/E fell to 7.58x at the end of March, about 2 standard deviations below the historical average and close to the lows seen during the European debt crisis and US-China trade tensions.

• Earnings revision frameworkEarnings Revisions Leading Indicator (ERLI)

  Use a leading indicator to judge whether consensus earnings estimates still have room to rise.

  ERLI suggests consensus earnings still have further upside, even if the pace may slow. Strong technology and US manufacturing activity, together with memory prices and export growth, continue to support Korean earnings upgrades.

• Risk sentiment frameworkKorea Equity Risk Barometer (GSSRKERB Index)

  Measure risk appetite in the South Korean equity market.

  The latest Korea Equity Risk Barometer is -2.0, still in risk-averse territory, indicating that market sentiment has not fully recovered.

Asset mapping & comparison

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

• KOSPI

  Core coverage asset

  Strengths

  Valuations are in a deeply compressed range, the earnings upgrade cycle is still ongoing, and the report maintains an overweight stance with a 7,000 target.

  Weaknesses

  March volatility was pronounced, and the risk appetite indicator remains in risk-averse territory.

  Comparison

  Forward P/E of 7.58x is close to historical crisis lows and about 2 standard deviations below the historical average.

  Risks

  Geopolitical uncertainty, potential earnings downgrades, continued foreign outflows, and elevated implied volatility.

• South Korean technology and semiconductor-related sectors

  Key driver of earnings upgrades

  Strengths

  Strong technology exports, improving memory-price expectations, and semiconductor exports support further earnings upgrades.

  Weaknesses

  Foreign investors are still under pressure to sell KOSPI Tech.

  Comparison

  ERLI suggests technology hardware and industrial sectors may have better earnings revision potential.

  Risks

  Memory prices falling short of expectations, export slowdown, or weaker global technology demand.

• Chemicals

  Beneficiary of earnings revisions

  Strengths

  Recorded the strongest earnings upgrades this week.

  Weaknesses

  The report does not provide more granular company-level drivers.

  Comparison

  Shows stronger earnings revision momentum than leisure.

  Risks

  Oil prices, demand, and cyclical commodity price volatility.

• Leisure

  Under pressure from earnings revisions

  Strengths

  No clear positive evidence.

  Weaknesses

  Recorded the largest earnings downgrades this week and was one of the weaker-performing sectors.

  Comparison

  Materially weaker than the better-performing sectors such as chemicals, steel, construction, and technology.

  Risks

  Weak consumer demand and further downward revisions to earnings expectations.

• KRW

  Related macro asset

  Strengths

  Appreciated modestly versus USD and EUR this week.

  Weaknesses

  Depreciated slightly versus JPY.

  Comparison

  Appreciated 0.2% versus USD, appreciated 0.1% versus EUR, and depreciated 0.2% versus JPY.

  Risks

  FX volatility could affect foreign flows and foreign-currency-denominated investment returns.

Key data

• KOSPI weekly performance-1.1% WoWKOSPI eased modestly this week, and market volatility remains elevated.
• March peak-to-trough declineNearly -20%The report says KOSPI experienced high volatility in March and found support around the 5,000 level.
• Forward P/E7.58xAs of the end of March, this is about 2 standard deviations below the historical average and the lowest level since the global financial crisis.
• Estimated downside levelAbout 5,100Stress scenario based on a 30% earnings downgrade and an 11x trough valuation.
• KOSPI target7,000Based on a 9.9x forward P/E and strong earnings upside.
• 12-month forward EPS revision+2.9%KOSPI 12-month forward EPS was revised up this week.
• KRW vs USD+0.2%KRW appreciated 0.2% versus USD this week, appreciated 0.1% versus EUR, and depreciated 0.2% versus JPY.
• Korea Equity Risk Barometer-2.0Still in risk-averse territory.

Impact & implications

From an investment perspective, the report tends to view the recent sharp pullback as a potential medium-term opportunity driven by valuation compression, rather than as confirmation that the earnings cycle has already weakened. If the earnings upgrades signaled by technology exports, memory prices, and ERLI continue to materialize, KOSPI may receive dual support from valuation recovery and earnings growth. However, if geopolitical risks intensify or earnings downgrades exceed the scenario assumptions, the market could still retest the downside range.

Risks

• Geopolitical uncertainty, including the Middle East conflict, may continue to weigh on risk appetite.
• Continued foreign selling of KOSPI, especially in technology and shipbuilding, could drag on the market rebound.
• If the roughly 30% earnings downgrades seen in prior historical downcycles repeat, the market could still retest the downside range around 5,100.
• Korean implied volatility is higher than in other Asian markets, and derivative hedging demand may amplify short-term swings.
• Weaker earnings revisions in some sectors such as leisure could undermine overall market earnings confidence.

What to watch

• Whether the April Q1 earnings season confirms the earnings upgrade cycle.
• Whether ERLI continues to point to upward consensus earnings revisions or shifts toward a slowdown or downgrade.
• Differences between TrendForce and Goldman Sachs technology team's forecasts for Q2 memory prices.
• Whether foreign flows into KOSPI technology and shipbuilding improve.
• Whether KOSPI forward P/E can recover from around 7.58x.
• Whether the Korea Equity Risk Barometer moves out of risk-averse territory.
• Changes in KRW, oil prices, and US and Korean manufacturing activity.