Goldman Sachs said the KOSPI's drop of more than 20% in just eight trading sessions amounts to a shock on par with the Asian financial crisis, the global financial crisis and the COVID-19 pandemic.
In its Korea Weekly Kickstart report released on the 19th, Goldman Sachs noted that the KOSPI has fallen more than 20% over the past eight trading sessions, adding that declines of more than 20% over such a short period have occurred "only during periods of extreme market stress, such as the Asian financial crisis, the global financial crisis and the COVID-19 outbreak."
Goldman Sachs attributed the selloff to inflation that came in above market expectations, concerns over credit markets tied to artificial intelligence, and uncertainty surrounding Chinese DRAM makers.
A simultaneous slide in global semiconductor stocks added fuel to the decline. According to Goldman Sachs, global chip stocks fell for eight straight sessions, setting a record for the longest losing streak ever. The KOSPI, heavily weighted toward memory chipmakers such as Samsung Electronics and SK hynix, came under greater downward pressure than the global semiconductor sector.
Notably, share prices and earnings outlooks moved in opposite directions. The KOSPI's 12-month forward earnings per share estimate was actually revised up by 0.3%. By sector, construction saw the largest upward revision to its profit outlook, while machinery was cut the most.
Goldman Sachs focused on this widening gap. The investment bank read it as a sign that weakening investor sentiment and unstable supply-demand conditions dragged down share prices even though corporate earnings forecasts had not deteriorated significantly.
As a result, KOSPI valuations have fallen to historic lows. The index's 12-month forward price-to-earnings ratio stands at 4.2 times, or 3.2 standard deviations below its historical average.
The problem is that the domestic market's buying base has weakened. Over recent weeks, the only meaningful buyers in the local market have been companies repurchasing their own shares, while major investor groups including foreign and retail investors have all continued to sell on a net basis.
"Foreign outflows this year have been concentrated in the two major memory chipmakers, Samsung Electronics and SK hynix," Goldman Sachs said. "Foreign ownership of the semiconductor sector has fallen to about 2.5 standard deviations below the average within its historical range."
Retail investor sentiment has also frozen. Goldman Sachs added that assets under management in leveraged exchange-traded funds have shrunk to levels seen during the market plunge amid the Iran war in March, indicating a sharp pullback in speculative demand.
Meanwhile, the KOSPI opened down more than 3% on the day before paring losses during the session. As of 10:50 a.m., the index was trading at 5,647.58, down 20.47 points, or 0.36%, from the previous session.