Brokerages warn of further Kospi downside

Korea Investment & Securities sees potential floor at 5,200; Goldman Sachs cuts 12-month target to 9,000

South Korean brokerages are warning of further downside in the Kospi as foreign selling and weakening trading activity weigh on stocks.

Korea Investment & Securities has identified 5,200 as a potential floor, while Goldman Sachs has slashed its 12-month target by 25 percent, though it remains bullish on Korean equities.

The outlook comes ahead of major central bank meetings this week, with investors watching for policy signals that could determine the market's near-term direction.

Korea Investment & Securities said Monday that a swift rebound appeared unlikely amid persistent foreign selling, thinning trading volumes and mounting global uncertainty.

Kim Dae-jun, an analyst at the brokerage, identified 5,200 as a potential floor for the Kospi, equivalent to a 12-month forward price-to-book ratio of 1. The index closed at 5,550.30 on Friday.

The Kospi fell 2.1 percent last week, extending its losing streak to four consecutive weeks. Average daily trading value plunged more than 70 percent from its June peak of 59.9 trillion won ($43.2 billion) to 17.6 trillion won.

Buying support has weakened following the completion of major share buybacks by Samsung Electronics and SK hynix. Growing doubts over returns on massive AI investments by US technology giants have added pressure on semiconductor stocks.

Goldman Sachs lowered its 12-month Kospi target to 9,000 from 12,000, citing more conservative valuation assumptions after the index lost over 35 percent from its June peak.

Despite the downgrade, the US investment bank maintained a positive outlook, arguing that the selloff had gone too far.

"The market is pricing an overly negative fundamental outlook," Goldman strategists wrote, according to Bloomberg.

They said Korean equities remained attractive on a risk-reward basis, with the revised target still implying more than 60 percent upside from current levels.

Goldman estimated that current semiconductor valuations imply a 65 percent drop in sector earnings in 2027, a scenario it considers excessively pessimistic.

The bank favors power and industrial stocks, beneficiaries of corporate governance reforms, and companies exposed to a domestic recovery and growing global demand for Korean cultural products.

Beyond domestic market weakness, Korea Investment & Securities cited France's fiscal troubles, rising oil prices, and Middle East tensions as additional risks. French 10-year government bond yields reached 5.02 percent on Friday, widening their spread over German bonds to 1.67 percentage points.

Attention now turns to this week's central bank meetings. Korea Investment & Securities sees a 90 percent probability that the US Federal Reserve will hold its benchmark rate at 4.00 percent on Wednesday. The European Central Bank and Bank of Japan are also expected to leave rates unchanged.

But steady rates may offer little relief if policymakers maintain a hawkish stance amid persistent inflation and elevated oil prices.

"Persistent pressure from high oil prices and demand-driven inflation makes it likely that the Fed and other central banks will maintain a hawkish hold," Kim said, warning that global uncertainty would make a swift Kospi recovery difficult.