On July 6, Goldman Sachs released its strategy framework for the Korean stock market for the second half of the year, maintaining a 12-month target for the KOSPI index at 12,000 points, indicating over 20% upside from current levels. The core support comes from an expected annual profit growth of 320% and a forward price-to-earnings ratio of only 6.65 times. This metric is 2.7 standard deviations below the historical average, marking the lowest level since 2009. In the first half of the year, Korean stocks led Asia with a 92% increase, primarily driven by earnings upgrades rather than valuation expansion: forward EPS was revised up by nearly 200%, while the forward P/E ratio slightly compressed. Samsung Electronics and SK Hynix contributed nearly 90% to the index's rise, with their combined market capitalization weight rising to 56% and profit weight reaching 72%. Goldman Sachs believes this concentration reflects genuine earnings rather than a bubble, but market breadth has fallen to its lowest since the pandemic, suggesting that volatility may increase if the market continues to rise in the second half. Addressing concerns about retail investor risks, Goldman Sachs pointed out that leverage levels are overestimated. The growth in leveraged ETFs is mainly due to asset appreciation rather than new leveraged funds, with the margin loan-to-deposit ratio actually declining, and retail investors still holding significant cash buffers while primarily allocating assets to real estate. Goldman Sachs anticipates that opportunities in Korean stocks will expand from memory chips to six main lines in the second half: the industrial sector (acceleration of defense orders and release of VLCC replacement demand), robotics and physical AI (Korea's auto parts ecosystem is expected to become a core supplier for humanoid robots), battery and power infrastructure (driven by data center energy storage demand), beneficiaries of corporate governance reforms (with multiple systems being implemented from July, over 70% of listed companies have a PBR below 1), re-inflation trades (the semiconductor profit spillover effect driving GDP upgrades and extending the rate hike cycle), and semiconductor capital expenditure supply chains (with the government planning to invest 800 trillion won in three major super projects). Goldman Sachs also cautions about threefold risks: seasonal weakness in the third quarter, technical correction pressure from significant deviations of the index from moving averages, and increased volatility from leveraged ETF market makers' hedging operations. The combination of profit growth and low valuation makes Korea the market with the lowest PEG in Asia, and the current valuation misalignment provides significant space for stock selection in the second half.

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Goldman Sachs Injects Confidence into Korean Stocks: 20% Rise Expected in Second Half!

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