Goldman Sachs: AI spending is a tailwind, but it’s hard to offset the selling pressure on South Korean stocks; the size of leveraged ETFs is already down to half from its peak

ME AI News: In its latest Korea market weekly report, Goldman Sachs noted that despite foreign investors’ consecutive net buying of KOSPI recently, and Alphabet’s raised AI capital expenditure outlook further reinforcing the semiconductor demand narrative, the South Korean composite stock price index still fell by about 2% last week. By sector, construction, software, and telecommunications showed relatively resilient performance, while securities, automobiles, and insurance saw the largest declines.

In market terms, on July 24, KOSPI further amplified its selloff, closing down 5.72% to 6,690.62 points. During the session it once touched 6,650.41 points, and algorithmic trading was temporarily halted for a short period. Yonhap News Agency said the intensifying situation in the Middle East dampened risk appetite: on that day, foreign investors and institutions combined for net selling of about 5.2 trillion won, while retail investors recorded net buying of about 5.18 trillion won.

Goldman Sachs believes the return of foreign capital is mainly concentrated in the technology sector, but the Korean market still faces substantial mid-term pressure from capital outflows. Foreign investors’ holdings in the semiconductor sector are also near historical lows. At the same time, the expected EPS for KOSPI over the next 12 months was lowered by 0.4%, with the automotive sector facing the greatest pressure from revisions to earnings forecasts.

Financial leverage is also cooling. The report shows that South Korea retail margin debt has fallen from a peak of $25 billion to $22 billion, and the size of leveraged ETFs has dropped from $53 billion to $26 billion. For the Korean stock market, AI capital expenditure remains the main line of support, but with earnings forecasts being revised down, foreign positions relatively light, and risk appetite fluctuating, short-term index rebound elasticity may continue to be amplified. (Source: BlockBeats)