[Goldman Sachs Report] Massive Capital Flows to Asia: Finding Hidden Gems in the KOSPI 5,800 Era

Original Report Date: February 21, 2026

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📌 3-Line Summary

• Record High Asian Exposure: Global hedge funds' exposure to Asian equities has reached its highest level since 2016, with significant capital inflows specifically targeting 'Asia ex-China' (Korea, Japan, Taiwan).
• KOSPI's Illusion and Opportunity: The KOSPI's breakthrough of the 5,800 mark is heavily driven by top-tier semiconductor stocks (Samsung Electronics, SK Hynix). However, the rest of the market (capital goods, industrials, etc.) remains deeply undervalued, offering highly attractive investment opportunities.
• Key Catalyst 'Treasury Share Cancellation': The passage of the Commercial Act amendment mandating the cancellation of treasury shares is expected to trigger further revaluation (Value-up) for companies holding high ratios of treasury stock.

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📖 In-Depth Report Analysis

■ 1. Global Hedge Funds' Asian Exposure at 'Record High': Where is the Money Really Going? Global hedge funds' investment weighting in Asian stock markets has reached its highest level since data tracking began in 2016. The detailed flow of these funds is particularly noteworthy. While Chinese stocks saw a surge in trading volume, actual net buying was limited. In contrast, hedge funds showed the strongest net buying in the 'Asia ex-China' region, specifically Japan, Korea, and Taiwan. This is backed by robust fundamentals, as Asia-Pacific companies (excluding Japan) are currently recording a 30% year-over-year earnings growth, with analysts' earnings revision speeds maintaining their strongest pace since 2021.

■ 2. Approaching MSCI Rebalancing: Clear Winners and Losers Investors tracking global capital flows should pay close attention to the MSCI non-core index rebalancing effective after February 27. Goldman Sachs anticipates a massive capital shift of approximately $25 billion across the Asia-Pacific market, resulting in a net inflow of $2.2 billion.

• Expected Net Inflows: China (+$1.9B), Japan (+$530M), Australia (+$270M), India (+$190M)
• Expected Net Outflows: Korea (-$420M), Thailand, Indonesia, Taiwan Consequently, the Korean market may face short-term supply and demand burdens due to the outflow of foreign passive funds.

■ 3. The Illusion of KOSPI 5,800: The Market's Appeal Excluding 'Top Two Techs' The KOSPI index broke through the 5,800 mark, soaring 5.5% over the short Lunar New Year holiday, driven by strong buying from domestic institutions. However, the 'KOSPI ex SEC, Hynix' index remains lagging around 4,568. Goldman Sachs argues that this neglected segment of the market actually presents a significant opportunity.

• Earnings & Valuation: Earnings forecasts for non-semiconductor KOSPI companies (especially in the capital goods sector) are steadily improving. The 12-month forward P/E sits at roughly 14x, remaining severely undervalued compared to Asian peers achieving similar ROE.
• Sectors to Watch: Industrials (36%) dominate this ex-tech index. Korean industrials—boasting strong global themes like defense, shipbuilding, and nuclear/power equipment—remain extremely cheap from a Price-to-Book (P/B) perspective.

■ 4. Diverging Capital Flows and Sector Differentiation Looking at recent flows, foreign investors net-sold approximately $700 million (mainly in tech stocks) over the week, while domestic institutional investors led the market with a strong net purchase of 3.26 trillion KRW.

• Sector Performance: Securities, Insurance, and Construction strongly outperformed, whereas Leisure, Telecom, and F&B lagged.
• EPS Revisions: Sector differentiation is becoming starker; the Software sector led earnings upgrades, while the Chemicals sector experienced the steepest downward revisions.

■ 5. Key Catalyst 'Commercial Act Amendment': Value-up Driven by Mandatory Share Cancellation Goldman Sachs highlights the '3rd Commercial Act Amendment' as a core catalyst for the Korean market. The bill mandates the cancellation of newly acquired treasury shares within 1 year, and grants a 6-month grace period for existing treasury shares, meaning all treasury shares must be cancelled within 1.5 years of enactment. Violations will result in strict penalties for individual directors. Goldman Sachs screened the top 30 companies with high treasury share ratios and the capacity for 'additional cancellation' (e.g., Shinyoung Securities 53%, SNT Dynamics 33%, Daewoong 30%, Lotte Corp 28%). Despite these 30 companies already seeing a median stock price increase of 28% this year, their 12-month forward P/B remains at just 1.1x. Goldman Sachs concludes that this indicates substantial room for further revaluation.

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💡 Investment Commentary for the KOSPI 5,800 Era

Rather than getting intoxicated by the superficial rise of the index, it is time to look at the details beneath the surface. Behind the index driven up by semiconductors hide excellent industrials and value stocks that have yet to see the light. Given the concerns about short-term foreign capital outflows due to the upcoming MSCI rebalancing, a valid strategy would be to compress your portfolio into companies holding unshakeable themes (defense, power infrastructure) and strong shareholder return cards (capacity for treasury share cancellation).