Goldman cuts Korean equity target but still sees sixty percent upside; Asian allocations shift toward cash flow and earnings delivery

Is this decline a broad retreat, or is the pressure concentrated in technology stocks?

The MSCI Asia Pacific ex Japan Index fell 2.3% during the week. The decline in October was concentrated mainly in technology and industrials, while several other sectors still rose, showing clear differences in selling pressure across sectors.
Pressure came from scrutiny of AI financing and earnings sustainability, Middle East tensions pushing up oil prices, and hawkish central bank stances. Brent crude rose to its highest level since May, and credit spreads widened to a 17-month high. The Bank of Korea held rates steady but struck a hawkish tone, while the Philippine central bank unexpectedly raised rates by 50 basis points.
Share price weakness has yet to be matched by earnings expectations: since September, the regional consensus for 2027 earnings per share has been revised upward by 1.8%, driven mainly by Taiwan, South Korea and Australia, and by the energy and information technology sectors. However, South Korea’s exports in early October and Taiwan’s industrial production have weakened, adding constraints on earnings resilience.

Goldman cut its KOSPI target from 12,000 to 9,000 points because heightened volatility and slowing earnings momentum warrant a deeper valuation discount. Relative to the 5,550 points listed in the report, the target still implies approximately 62% price upside.
The bullish case rests on the discount in prices relative to earnings: the KOSPI’s forward price-to-earnings ratio is about 4 times, roughly 3 standard deviations below its historical mean. Based on the historical relationship between price-to-book value and return on equity, Goldman estimates that even at 9,000 points, the index would still trade at a discount of more than 20%.
The target cut therefore reflects more conservative valuation assumptions. The recovery thesis depends on whether corporate profitability can support the return on equity used in the model, rather than on a low price-to-earnings ratio alone.

Goldman believes current memory-sector valuations already imply that 2027 earnings will be about 65% below current expectations. In its model, the current price-to-book ratio of 2.6 times corresponds to a forward return on equity of about 23%, versus a consensus of 45%; the gap supports its bullish view.
This reasoning also has limits: the scenario analysis depends on earnings, book equity and dividends adjusting together, and on historical valuation relationships continuing to apply. If earnings are worse than the scenario already implied, valuations could remain under downward pressure.
The non-memory sector, which accounts for about half the index, remains undervalued by more than 30% according to Goldman’s model. Its preferences therefore also include power utilities, industrials and beneficiaries of corporate governance reform. The Value-Up program offers another path to recovery by increasing shareholder returns, narrowing holding-company discounts and improving capital allocation.

Asian emerging markets excluding China saw net outflows of 8.9 billion dollars during the week, including 7.6 billion dollars from Taiwan and 1 billion dollars from South Korea. Goldman’s prime brokerage data also show that Asian hedge fund trading remained dominated by net selling in October.
Positioning has fallen, but remains high by longer-term comparison. As of 21 October, net exposure to South Korea had dropped to the 31th percentile of the past year, yet remained at the 86th percentile of the past five years; Taiwan’s net exposure stood at the 92th percentile over five years.
Assets in Korean leveraged ETFs fell from a peak of 53 billion dollars to 16 billion dollars, mainly due to price performance, alongside sustained redemptions since late July. The latest week also saw dip-buying subscriptions, showing that shrinking assets and new buying can coexist.

A higher discount rate increases the relative value of near-term cash flow. Goldman favors short-duration assets, value and reasonably valued growth, while selecting strong balance sheets, stable margins and sustainable dividends to navigate rising borrowing costs and market rotation.
AI remains a structural earnings driver Goldman favors, but its stock selection focuses on semiconductors and hardware in bottleneck segments where earnings visibility is stronger. In power, it focuses on rising demand and physical infrastructure constraints. Regional allocations continue to favor global business exposure because restrictive policies and weak domestic demand are weighing on local cyclical activity.
Most Asian companies will disclose third-quarter results from mid-October to late November. Goldman therefore places greater weight on upward earnings forecast revisions and actual delivery, while placing less emphasis on allocation based solely on share-price momentum.