[Goldman Sachs & ING Report] KOSPI's Plunge is a 'Healthy Correction': Rebound Signals Backed by Fundamentals and Earnings

[Goldman Sachs & ING Report] KOSPI's Plunge is a 'Healthy Correction': Rebound Signals Backed by Fundamentals and Earnings

Subtitle: The Illusion of Short-Term Crashes, 130% Earnings Growth Led by Semiconductors, and Value-Up Momentum

Original Report Date: March 6, 2026

---

3-Line Summary

• Healthy Correction and Historic Resilience: The KOSPI's recent 20% drop is merely a 'delayed correction' following a massive previous surge (+176%). Historically, following record-breaking crashes since the 1990s, the KOSPI has shown powerful resilience, rebounding an average of 49.4% within 12 months.

• Valuation Appeal Backed by Earnings: Fueled by a semiconductor supercycle, the projected Earnings Per Share (EPS) growth rate for the KOSPI this year has been upgraded to +130%, while the 12-month forward P/E has plunged to 8.8x, entering territory of absolute undervaluation.

• Limited Supply & Macro Risks: Foreign sell-offs are largely profit-taking in semiconductors, and retail margin debt weight (0.6%) is at a 5-year low, minimizing forced liquidation risks. Despite inflationary pressures from rising oil prices, the Bank of Korea is expected to maintain its neutral interest rate (2.5%).

---

In-Depth Report Analysis

Amid extreme volatility in global financial markets caused by intensifying armed conflicts in the Middle East, including Iran, the South Korean stock market suffered a severe blow. The KOSPI plunged 11% last week and recorded its largest-ever single-day drop of -12.1% on March 4th.

However, recent reports from Goldman Sachs and ING offer a perspective that contrasts sharply with the market's panic. They diagnose the current downturn not as a crisis to flee from, but as a 'healthy correction' where investors should stand firm, trusting corporate fundamentals and explosive earnings growth. Let's closely examine the logical grounds on which Goldman Sachs decisively raised its KOSPI target to 7,000 points.

1. The Illusion of a Short-Term Crash: Remember the Massive Prior Rally

The primary reason Goldman Sachs evaluates the Korean market positively is that it contextualizes the recent decline with the "explosive upward trend" that preceded it. The KOSPI has fallen about 20% from its recent peak in late February, signaling a technical bear market. However, one must not overlook that the KOSPI had surged a staggering 176% since its bottom in April 2025. Even compared to the low immediately following a brief correction last November, the index was already up 65%.

In other words, this 20% drop surrenders less than 30% of the total gains made since last April. It is merely a 'delayed correction' cooling off an overheated market, not a breakdown of the long-term secular bull trend.

Historical data proves this resilience. Analyzing instances of record single-day drops of around 10% since the 1990s (Dot-com bubble, Global Financial Crisis, Pandemic), as long as fundamentals were not destroyed, the index rebounded powerfully by an average of 15.8% after 3 months, 25.4% after 6 months, and a massive 49.4% after 12 months. Sharp declines driven by geopolitical risks, in particular, show a clear tendency to recover within 1 to 2 quarters.

Furthermore, even if global equities undergo a synchronized 10% correction, as long as the US economy avoids a recession within 12 months, the Korean market has historically bounced back strongly, recording 18-20% high return rates (in USD terms) a year later. Regarding the surge in oil prices—the main catalyst for this drop—even if oil rises by $20 per barrel, unless this persists long-term, the cumulative hit to Korean corporate earnings growth is projected to be just -2%, showing relatively strong defensive capabilities compared to other emerging markets.

2. Misunderstood Supply Dynamics: Neither a Foreign Exodus Nor a Margin Debt Collapse

Another factor fueling market fear is the large-scale foreign sell-off and concerns over retail investors' margin debt liquidations (margin calls). Foreign investors have net-sold $15 billion in Korean equities this year. However, this is not an "exodus" from the Korean market, but rather carries the strong characteristics of 'profit-taking' on leading semiconductor stocks (Samsung Electronics +85%, SK Hynix +70% YTD) that had soared significantly. This was compounded by mechanical selling due to the portfolio rebalancing of EWY (iShares MSCI South Korea ETF).

While the media frequently highlights the absolute scale of retail margin debt reaching a record 33 trillion won, when converted into a percentage of total market capitalization, it is only 0.6%—which is actually at a 5-year low. The risk of a cascading 'margin call bomb' triggering forced liquidations during a price drop is much lower than the market's blind fears suggest. Instead, attention should be paid to domestic institutional investors, who have injected 20 trillion won year-to-date to firmly defend the market's bottom, and still possess ample capacity for further buying.

3. The Core is 'Earnings': 130% Profit Growth Led by Semiconductors

The decisive reason Goldman Sachs raised its KOSPI target from 6,400 to 7,000 is the overwhelming 'earnings outlook'. Goldman Sachs has once again upgraded its Earnings Per Share (EPS) growth forecast for the Korean market this year from +120% to +130% (its third upgrade this year alone).

At the center is the 'semiconductor supercycle'. While demand for server memory is exploding due to expanded AI investments, supply remains severely constrained. TrendForce's continuous upward revisions of DRAM and NAND Average Selling Prices (ASP) back this up. Due to the high fixed costs inherent in the semiconductor industry, the 'operating leverage' effect—where profits increase exponentially as prices rise—is materializing in full force, with February memory exports hitting an all-time high.

4. Valuation Appeal and 4 Core Investment Themes

As stock prices fell while earnings forecasts rose, the Korean market has paradoxically entered an era of perfect undervaluation. The KOSPI's 12-month forward Price-to-Earnings (P/E) ratio has dropped to 8.8x (-0.8 standard deviations below its historical average), and its 24-month forward P/E has fallen to 7.8x. Conversely, Return on Equity (ROE) exceeds 20%. Companies are making excellent money, yet their stocks are exceptionally cheap. Goldman Sachs presented 4 core themes that will lead the Korean market's rebound for the time being:

• AI-Related Stocks: Robotics, power grid infrastructure, nuclear power

• US Re-industrialization Beneficiaries (Industrials): Defense, shipbuilding

• Corporate Governance Reform (Value-Up): Momentum from mandatory treasury stock cancellation completion by Feb 2026 and shareholder activism campaigns during proxy season

• K-Culture: Cultural content generating peer-beating earnings among consumer discretionary

5. Macroeconomics: Oil and FX Noise, but a Steadfast BOK

Finally, let's review macroeconomic risks. South Korea's February Consumer Price Index (CPI) maintained a stable 2.0% year-over-year increase, aided by government price controls on agricultural products and petroleum.

However, 'Core CPI', which excludes highly volatile items, rose to 2.3% due to hikes in suppressed private service fees. Furthermore, geopolitical instability in the Middle East caused the USD/KRW exchange rate to touch 1,500 at one point, and a surge in domestic gasoline prices has heightened the upside risk for import inflation. Accordingly, ING slightly raised its annual inflation forecast for Korea to 2.2% this year.

Despite this, experts predict the Bank of Korea (BOK) will freeze its base interest rate (2.5%) throughout the year. The analysis suggests that because inflationary pressure stems from 'supply-side factors' like oil rather than explosive domestic demand, and because the domestic economy remains fragile, the BOK will not hastily hike rates and pour cold water on the economy.

---

StockHub Insight & Comments

While the herd dumps stocks in a panic, global investment banks are coldly calculating the KOSPI's 'numbers' (earnings and valuations). A daily plunge of -12% looks terrifying, but considering the immediate prior surge of +176%, it is a highly natural profit-taking phase. Above all, the fundamentals of the semiconductor sector—which is expected to see 130% earnings growth this year—remain completely uncompromised, and the fact that the KOSPI's forward P/E has dropped to 8.8x signals a clear bargain-hunting opportunity for mid-to-long-term investors. Rather than being shaken by external geopolitical noise (oil, exchange rates), now is the time to actively screen and expand weightings in AI, defense, shipbuilding, and 'Value-Up' beneficiaries with clear earnings visibility.