South Korea’s KOSPI has dropped nearly 25% from its June 22 peak after a global semiconductor sell-off collided with a momentum reversal, according to BlockBeats. The index fell another 8.8% this week alone. As of July 16, the benchmark’s 12-month forward price-to-earnings ratio had fallen to 5.78x, below the trough recorded during the 2008 global financial crisis and the lowest level since 2004.
Goldman Sachs says valuations now show positively skewed risk-reward
In a weekly report dated July 17, Goldman Sachs said stress tests suggest the market is already pricing in a severe downturn. Even if earnings per share were cut by 41%, matching the worst level seen during the financial crisis, and the market were valued at 13x earnings, the same multiple seen at the 2008 EPS trough, the KOSPI would still imply a level of about 8,965. Goldman said that remains well above the current level, indicating a positively skewed risk-reward profile.
On a price-to-book basis, the market’s forward P/B has retreated to 1.43x, while forward ROE is still holding near 25%. Goldman described that divergence as unusual.
UBS says valuations stay cheap even without the two chip heavyweights
UBS added that if Samsung Electronics and SK Hynix are excluded, the KOSPI’s overall forward P/E stands at 8.79x, still below its historical average.
Foreign flows turn positive, but tech remains under pressure
Foreign investors turned net buyers this week, with about KRW 19 billion in net inflows. Most of that money went into autos and retail. Technology shares, however, still saw net selling of about KRW 76.6 billion. The Korean won appreciated 1.2% against the U.S. dollar this week.
Even so, Goldman’s Korea equity risk barometer stood at -2.7, which it said still places the market in a deep risk-off zone.
South Korea tightens rules on single-stock leveraged ETFs
On the regulatory side, the South Korean government introduced a series of new rules for single-stock leveraged ETFs. Starting Aug. 5, cash margin requirements will rise from about KRW 3 million to KRW 30 million. From Aug. 19, substitute collateral will be banned, new product listings will be suspended, and marketing of existing products will be prohibited immediately. The minimum trading unit is also set to increase from one unit to 20 units in November.
UBS said the KRW 30 million all-cash margin requirement will significantly reduce room for retail participation. Still, part of the deleveraging had already happened before the rules took effect. Total assets in single-stock leveraged ETFs have already fallen from a peak of about KRW 2.4 trillion on June 25 to about KRW 1.7 trillion.
Both banks keep targets, but near-term positioning differs
Goldman also said that while margin financing balances have fallen from a peak of KRW 38 trillion to KRW 33 trillion, Korean investor deposit balances have climbed to KRW 110 trillion. That has pushed the ratio of financing balances to deposits lower, suggesting limited systemic leverage risk overall.
On strategy, Goldman maintained its 12,000 target for the KOSPI and recommended buying on dips. UBS kept its 9,200 target but shifted to a barbell approach, adding defensive exposure in consumption, healthcare, and construction while removing cyclical and growth sectors that had posted large gains earlier.
Both institutions said Korean equities are trading at historically extreme low valuations. Their responses diverge on short-term volatility and uncertainty around AI demand.