Crazy increase of 78% still not stopping! Goldman Sachs raises bullish flag as South Korean stocks head towards a new journey to 9000 points.

In recent years, the comprehensive stock price index of South Korea (KOSPI) has continuously refreshed historical highs, and the South Korean capital market has reached a new milestone that no one predicted. The long-term undervaluation and range-bound curse that has suppressed Korean stocks for decades seems to have been completely broken. In a recent report released by Goldman Sachs Group, Inc., the bank boldly expressed its confidence in the South Korean stock market, viewing Korean stocks as its "highest conviction" in Asia, maintaining an "overweight" rating, and raising the target price for the KOSPI index for the next 12 months from the previous 8000 points to 9000 points. Behind this optimistic assessment is the remarkable performance of the KOSPI index this year. The index surpassed the key 7000-point mark for the first time this week. So far, this bull market has driven the index to surge by about 78% year-to-date, making it one of the best-performing markets globally. Goldman Sachs Group, Inc. believes that the core DRIVE of this rally comes from the demand for storage semiconductors driven by artificial intelligence (AI). The South Korean semiconductor industry, led by Samsung Electronics (SSNLF.US) and SK Hynix, is becoming a key bottleneck in the global AI supply chain. Analysts at Goldman Sachs Group, Inc. wrote in the report, "The prospects for the storage semiconductor industry to continue to generate high profits indicate that the market has mispriced the sustainability of its earnings." Despite the recent surge, Goldman Sachs Group, Inc. believes that the overall valuation of Korean stocks is still in a relatively reasonable range, and the value of allocation is still prominent. The bank expects that with the driving force of hardware and semiconductor stocks, South Korean corporate profits will achieve a 300% growth by 2026. The report specifically points out that in the key DRAM and NAND chips in AI servers and data centers, "a record supply gap, combined with strong demand brought about by massive data center investments, is driving storage chip prices sharply higher." With the rise of high-computing power AI smart bodies and the landing of long-term supply agreements, storage chip manufacturers may usher in a "prolonged period of high profitability." As of the close of Friday, the KOSPI index was at 7498 points. Although the index fell more than 2% in early trading, it fully recovered from the intraday decline and even surpassed the 7500 mark at one point. This week, the KOSPI index has risen by 13.6%, marking the largest weekly gain since October 2008. From "cyclical" to "structural": Bottleneck strategic reshaping value logic Behind this capital feast is the "AI arms race" launched by global IT giants for survival. As mentioned by Keum Jung-seop, the head of the ETF business at Hana Asset Management, large technology companies cannot stop investing, even when faced with pressure on free cash flow, as falling behind in this competition means being eliminated from the industry. In this process, South Korean companies have reaped huge profits thanks to their dominance in key bottleneck areas such as "semiconductors" and "electricity". Park Yeon-joo, the head of asset and securities research, pointed out from the perspective of penetration rate that AI currently accounts for only 1% of the global knowledge labor market, leaving ample room for growth. She predicts that by 2026, semiconductors will contribute to 60% of all operating profits on the KOSPI, becoming a solid shield for the stock market. Experts believe that the semiconductor industry has broken free from the shackles of past boom and bust cycles and has built a solid profit base relying on the strong demand for server chips and three- to five-year long-term supply contracts. The industry's fundamentals have changed significantly. Yoon Seok-mo, the head of Samsung Securities research, revealed a structural change that has been overlooked by the market: the profits of the top three memory chip companies in the server DRAM segment even exceed the highly sought-after High Bandwidth Memory (HBM), with even higher profit margins. This indicates that as AI models become more complex, the demand for basic server storage for data processing is growing explosively. At the same time, long-term supply contracts of three to five years lock in profits, allowing the semiconductor industry to break free from the fate of extreme cyclic fluctuations of the past. The "reefs" on the path of celebration: Passive funds and valuation pressure However, it is important to note that, despite the bullish views of Goldman Sachs Group, Inc. and many other institutions, global investors are engaged in a fierce debate on whether AI trading has become too crowded. Since the beginning of 2025, the KOSPI has more than doubled, marking a dramatic turnaround for the Korean market that has long been constrained by the so-called "Korea discount" phenomenon. Currently, the corporate governance reforms and shareholder-friendly policies promoted by the South Korean government for many years are aligning with the global AI investment frenzy. Billions of dollars from domestic retail investors and foreign investors are pouring into the South Korean stock market. However, while the index continues to rise, some funds are flocking to short-side inverse ETFs, indicating that investor confidence in the stock market is still fragile. Some market experts caution that in this journey to break historical records, investors need to be wary of several "invisible reefs." First, the "quality" of funds is a concern. Jung Sang-woo, head of ETFs at KB Asset Management, warns that the influx of foreign funds recently is mainly passive funds that mechanically follow the index. If they encounter external negative factors, these funds may collectively flee, exacerbating market volatility. Second, foreign funds are much more sensitive to valuation than local investors, so after a sharp rise in the index, it is easy to trigger profit-taking by foreign funds. Na Yong-soo, head of ETFs at Korea Investment Trust Management, pointed out that visible risks such as the conflict in the Middle East with GEO Group Inc have been largely absorbed by stock prices. The real variable to be wary of is the direction of US monetary policy - if stubborn prices lead to a decrease in expectations of a Fed rate cut, it could pose a substantial risk to the market. From "dominance of semiconductors" to "blossoming in all areas" is key Currently, the market is closely watching whether the 7000-point mark can solidify from a temporary peak into a long-term new bottom. Analysts generally believe that the continued bull market requires spreading the hotspots from semiconductors to broader industries. Na Yong-soo predicts that the "South Korean heavy industry" sector, such as shipbuilding, defense, nuclear power, and automobiles, is expected to be incorporated into the AI value chain and undergo a reassessment. This situation is reminiscent of the Japanese stock market taking off under government support in the past. However, stock differentiation will intensify, as Keum Jung-seop warns that even as the index rises, there is still a risk of individual stocks falling. Convincing the market that industries beyond semiconductors can also create substantial profits in the long run will be key to the next leap of the KOSPI.