Goldman Sachs holds Kospi target of 12,000, says market undervalues earnings cycle

Goldman Sachs is maintaining its Kospi target of 12,000, saying the market is undervaluing the current earnings cycle.

Tim Mo, Goldman Sachs' chief Asia-Pacific equity strategist, said in an interview conducted Friday that the bank stands by its call. "We still maintain that position," Mo said. "It is based on our judgment that earnings will provide support. The market is underestimating the duration of this earnings cycle," according to Yonhap, citing Bloomberg.

Mo said the memory chip supply shortage driven by data center competition will deepen further next year. He also forecast that US big tech capital expenditure for next year would be revised up from a previous estimate of $800 billion to $1.2 trillion.

"Hyperscalers are in a position where they have to keep spending even if they are not making money," he said. "This is good for memory chips, because it will drive computing demand that requires a very large amount of memory."

Mo projected earnings growth for Kospi-listed companies at around 360 percent this year, though he expects that to slow to 35 percent next year.

The Kospi target is based on a 12-month forward earnings multiple of 7.5 times, while the index currently trades at 5.3 times — roughly half its seven-year average, he said.

If Korean companies meet their earnings forecasts, the 12,000 Kospi target "will not look unreasonable," he added.

Mo had previously raised his Kospi target from 9,000 to 12,000 in early June. In early August, he kept the target unchanged, characterizing the June decline as a sharp correction within a broader bull market.

Goldman Sachs held a positive view in early August as well.

At the time, the Kospi had surged 116 percent since the start of the year, closing at 9,114.55 on June 22, before falling 39 percent to a trough on July 30.

Goldman Sachs said the speed and scale of the decline were similar to other sharp corrections the market had experienced over the past 20 years — including the post-2021 tech boom selloff, the COVID-19 outbreak and the 2011 correction — according to Yonhap.

Goldman Sachs cited the memory chip sector, which carries a large share of market capitalization, as the key reason for maintaining its positive outlook.

Taking into account accelerating computing demand and a serious supply shortage that could persist through 2030, the bank judged that the current memory chip cycle could prove stronger and longer-lasting than previous ones.

It also said that while concerns about the memory chip cycle, hyperscaler capital expenditure, capital market fundraising and competition were valid, they did not undermine its base scenario of a long and large cycle.

Goldman Sachs also saw supply-demand conditions as having improved, noting that positioning had become cleaner than before due to a decline in leveraged ETF net assets, reduced margin financing exposure, tighter regulation and easing hedge fund exposure.