Goldman Sachs raised its Kospi target from 9,000 to 12,000 and maintained an overweight recommendation on the index.
In a report Wednesday, the investment bank said the Kospi has "roughly 37 percent further upside" and that while short-term corrections remain possible, "the investment appeal remains high."
The bank cited earnings growth among Kospi-listed companies and strength in the memory chip sector as the basis for the upward revision.
Goldman Sachs said the consensus earnings growth estimate for Kospi-listed companies has climbed from 48 percent at the start of the year to 277 percent currently, driving the index's rally.
It added that earnings prospects across the broader market are also improving significantly, even excluding Samsung Electronics and SK Hynix, and raised its earnings growth forecasts for Kospi companies to 320 percent for this year and 35 percent for next year.
Goldman Sachs said Korea is showing "the strongest earnings momentum in Asia."
A surge in AI demand has given memory chip makers greater pricing power, which could further boost their profits and adds to expectations of additional Kospi gains.
"The market currently assumes that memory chipmakers' high profitability will not last long, but we expect this cycle to last far longer than previous ones," Goldman Sachs said.
The bank also said more than 60 percent of listed stocks remain undervalued and that it holds a positive view on defense, shipbuilding and power supply-related shares. It noted that the Kospi's current forward price-to-earnings ratio stands at 8.2 times, about 20 percent below its historical peak, and set a downside floor at 7,820.
Goldman Sachs also flagged risks, pointing to the heavy weighting of memory chipmakers such as Samsung Electronics and SK Hynix and a rise in speculative trading by retail investors through leveraged ETFs.
"A correction could amplify the risk of leveraged position unwinds," the bank said.
joze@heraldcorp.com
