What about a 20% pullback? Goldman Sachs: Korean stocks will hit new highs after consolidation

Under the shadow of Middle Eastern geopolitical conflicts, the South Korean KOSPI index recently experienced a sharp sell-off of up to 20%. However, Goldman Sachs’s latest statement advises: don’t be blinded by the short-term plunge; the Korean stock market will still reach new highs after consolidating.

On March 7, according to Chasing Wind Trading Platform, the core message of Goldman Sachs’s research report is clear: Panic selling creates buying opportunities, not signals to escape.

Goldman Sachs states that considering the astonishing 176% rise in Korean stocks since April 2025, the current decline is merely a “delayed correction,” not the start of a bear market. The Korean stock market will not only recover but will also hit new highs after consolidation.

The report emphasizes that, more importantly, based on the strong performance of semiconductor storage chip prices, Goldman Sachs has further raised its profit growth forecast for Korea in 2026 to 130%, and significantly increased the KOSPI target to 7,000 points, implying a potential upside of 25%.

The truth behind the 20% plunge: in the context of a 176% rally, it’s just an oversold correction

Goldman Sachs straightforwardly points out in the report that understanding this decline requires first understanding its origin.

Recently, Middle Eastern conflicts triggered a sell-off in Asian stock markets, with Korea bearing the brunt. In the initial trading days after the conflict erupted, the KOSPI index fell a total of 20% from the February 26 closing high, with March 4 seeing a single-day drop of 12.06%, the largest in history, sparking concerns about a “crash” or “bear market.”

But Goldman Sachs emphasizes that this decline must be viewed in the context of the prior surge.

From the low on April 9, 2025, to the high at the end of February 2026, the KOSPI rose a total of 176%; even from the recent low on November 21, 2025, the increase was 65%. Against this backdrop, the 20% correction from the February 26 high is only half of the recent gains, less than one-third (30%) of the full rally.

The report specifically notes that, more critically, the 12.06% single-day plunge on March 4 set a record, but the next day, March 5, the index rebounded 10%, regaining the 30-day moving average, and the long-term upward trend remains intact. Goldman Sachs believes this pattern indicates that the current decline should be characterized as an oversold correction rather than the beginning of a bear market.

Historical data also supports this judgment. Goldman Sachs states that reviewing the most severe single-day declines in KOSPI history—including 9/11 (-12.0%), the Global Financial Crisis (-10.6%), and COVID-19 (-8.4%)—the average returns over the following 3, 6, and 12 months were 15.8%, 25.4%, and 49.4%, respectively (assuming no fundamental deterioration).

Furthermore, whenever global geopolitical risk indices spike historically, the Korean stock market, though declining simultaneously, has rebounded significantly within 1 to 2 quarters.

Market positioning is not overly crowded; the sell-off risk is exaggerated

The report states that concerns about “overcrowded positions potentially triggering chain forced liquidations” are among the most unsettling narratives during this decline. Goldman Sachs dissects holding data layer by layer and believes this concern is clearly overstated.

• Foreign investors: Since the beginning of the year, net sales of $15 billion, mainly concentrated in SK Hynix (which surged up to 70% this year) and Samsung Electronics (+85%), partly due to passive rebalancing of the EWY iShares MSCI Korea ETF. Nonetheless, foreign holdings of Korean stocks remain at 34.5%, which is +0.7 standard deviations above the 2000s average—positions are full but not extremely stretched.
• Retail investors: Overall net selling in 2025 and early 2026, only turning to net buying in February. Margin debt, while reaching a record high of 33 trillion won in absolute terms, accounts for only 0.6% of total market cap—at a five-year low, indicating limited leverage risk.
• Domestic institutions: Have been continuously net buying since last year, with net inflows reaching 19.9 trillion won so far in 2026, but their holdings are still below historical averages, leaving room for increased positions rather than forced reductions.

Overall, Goldman Sachs believes that the current position structure does not pose systemic forced liquidation risks, and market panic is exceeding what fundamentals justify.

Profit expectations are being raised for the third time this year, driven by a semiconductor supercycle

The fundamental reason for Goldman Sachs’s bullish outlook on Korean stocks is the solid earnings outlook. Goldman Sachs has raised its 2026 profit growth forecast for Korea from 120% to 130%, marking the third upward revision this year, primarily driven by the sustained strong performance of the semiconductor storage industry.

Specifically, ongoing capital expenditures by hyperscale cloud providers are fueling strong demand for DRAM and NAND, while supply shortages persist, leading to continued upward pressure on storage chip prices (ASP)—TrendForce has again raised its ASP forecasts for DRAM and NAND. Korea’s storage chip exports hit a record high in February.

Goldman Sachs’s Leading Indicator of Earnings Revisions (ERLI)—which predicts future earnings forecast revisions by sell-side analysts based on high-frequency macro and industry data—is currently the most optimistic for Korea and the tech sector among all Asia-Pacific markets. Additionally, the slightly better-than-expected Q4 2025 results suggest that 2026 earnings growth is built on a solid base.

Valuations are attractive; target KOSPI raised to 7,000 points

Goldman Sachs believes that after this round of approximately 12% correction, the valuation of the Korean market has become even more attractive.

Currently, the 12-month forward P/E ratio of the KOSPI is only 8.8x (below the historical mean by 0.8 standard deviations), the P/B ratio is 1.8x, and the ROE exceeds 20%. Even excluding Samsung and SK Hynix, the 12-month forward P/E remains at only 12.9x, still undervalued compared to regional peers.

Based on higher profit forecasts, Goldman Sachs has raised its 2026 year-end target for KOSPI from 6,400 to 7,000 points (target P/E of 9.8x).

This implies a potential upside of 25%, and if considering currency appreciation and dividend yields, the total return in USD could reach 28%. Goldman Sachs maintains an “overweight” (OW) rating on Korea in its regional allocations.

Meanwhile, the upward revision of the Korea target also lifted Goldman Sachs’s year-end target for the MSCI Asia Pacific ex-Japan (MXAPJ) index from 890 to 900 points.

Additionally, Goldman Sachs upgraded its regional energy sector rating from underweight (UW) to neutral (MW), citing recent oil price increases driven by Middle Eastern conflicts and the potential for strategic reserves replenishment to provide downward support for oil prices.

All the above insights are from Chasing Wind Trading Platform.

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