Goldman Sachs Administers Strong Stimulus to South Korean Stocks: Another 20% Surge in the Second Half of the Year! Market Leverage Risk Overestimated, Opportunities to Expand to Six Major Themes

BlockBeats News, July 6th. Goldman Sachs released its second-half strategy framework for the South Korean stock market, maintaining a 12-month target of 12,000 points for the KOSPI index. This target still offers over 20% upside potential from the current level, with core support coming from the expected 320% full-year earnings growth and a forward P/E ratio of only 6.65 times. The index is 2.7 standard deviations below its historical average, the lowest since 2009.

In the first half of the year, the Korean stock market led Asia with a 92% gain, but the surge was mainly driven by earnings upgrades rather than valuation expansion: forward EPS was revised up by nearly 200%, while the forward P/E ratio saw a slight contraction. Samsung Electronics and SK Hynix contributed to almost 90% of the index's gain, with their combined market value weight rising to 56%, and earnings weight as high as 72%. Goldman Sachs believes this concentration reflects earnings strength rather than a bubble, but market breadth has fallen to its lowest level since the pandemic, and if the upward trend continues in the second half of the year, volatility will intensify.

To address retail investors' risk concerns, Goldman Sachs pointed out that leverage levels are overstated. The growth in leverage ETFs' size mainly comes from asset appreciation rather than new leveraged funds, and the actual margin loan-to-deposit ratio is decreasing. Retail investors still hold a significant amount of cash for buffering, and their asset allocation is still primarily focused on real estate.

Goldman Sachs believes that in the second half of the year, Korean stock market opportunities will transition from the memory chip sector to six major themes: the industrial sector (acceleration of defense orders, awaiting release of VLCC replacement demand), robotics and physical AI (the Korean automotive parts ecosystem is expected to become a key supplier for humanoid robots), batteries and power infrastructure (driven by data center storage demand), beneficiaries of corporate governance reform (starting in July, with over 70% of listed companies having a PBR of less than 1x), reflation trades (semiconductor profit spillover effect driving GDP revisions and extension of rate hike cycles), and semiconductor capital expenditure supply chain (government's "Three Major Super Projects" plan with an investment of 80 trillion Korean won).

Goldman Sachs also highlighted threefold risks: third-quarter seasonal weakness, technical retracement pressure from the index significantly deviating from the moving average, and leverage ETF market maker hedging operations amplifying volatility. The combination of earnings growth and undervaluation makes South Korea the market with the lowest PEG ratio in Asia, and the current valuation dislocation provides significant room for stock selection in the second half of the year.