Goldman Sachs injects a shot in the arm for Korean stocks: another 20% rise in the second half! Market leverage risk is overestimated, opportunities will spread to six major themes.

BlockBeats reported on July 6 that Goldman Sachs released its strategic framework for the Korean stock market in the second half of the year, maintaining the KOSPI index's 12-month target of 12,000 points, which still has over 20% upside from current levels. The core support comes from the expectation of full-year earnings growth of 320% and a forward price-to-earnings ratio of only 6.65 times. This indicator is 2.7 standard deviations below the historical average, the lowest since 2009.

In the first half of the year, Korean stocks led Asia with a 92% gain, but the rise was driven mainly by earnings upgrades rather than valuation expansion: forward EPS was revised up nearly 200%, while the forward P/E ratio actually compressed slightly. Samsung Electronics and SK Hynix contributed nearly 90% of the index's gain, with their combined market cap weight rising to 56% and earnings weight reaching 72%. Goldman Sachs believes this concentration is a true reflection of earnings rather than a bubble, but market breadth has fallen to its lowest since the pandemic. If the rally continues in the second half, volatility will increase.

Addressing retail investors' risk concerns, Goldman Sachs pointed out that leverage levels are overestimated. The growth in leveraged ETF assets mainly comes from asset appreciation rather than new leveraged capital. The margin loan-to-deposit ratio is actually declining. Retail investors still hold a large amount of cash buffers, and their asset allocation remains dominated by real estate.

Goldman Sachs believes that opportunities in Korean stocks in the second half will spread from memory chips to six major themes: industrial sectors (defense orders accelerating, VLCC replacement demand pending), robotics and physical AI (Korea's auto parts ecosystem could become a core supplier for humanoid robots), batteries and power infrastructure (data center energy storage demand driving growth), beneficiaries of corporate governance reform (multiple systems to be implemented intensively from July, over 70% of listed companies have a PBR below 1x), reflation trades (semiconductor profit spillover pushing GDP upgrades and a longer rate hike cycle), and the semiconductor capex supply chain (the government's "three mega projects" plan to invest 800 trillion Korean won).

Goldman Sachs also highlights three risks: seasonal weakness in the third quarter, technical correction pressure from the index significantly deviating from its moving average, and leveraged ETF market makers' hedging operations amplifying volatility. The combination of earnings growth and low valuation makes Korea the market with the lowest PEG in Asia. The current valuation dislocation provides significant room for stock selection in the second half.