Asian tech stocks sold off: Why did Goldman Sachs cut its Korea target but still expect a rebound?

Is this decline a broad exit from Asia, or a concentrated reduction in technology holdings?

The MSCI Asia Pacific ex Japan Index fell 2.3% this week; weakness throughout October was concentrated mainly in technology and industrials, while some other sectors still rose. Goldman sees this as a relatively concentrated reduction in risk, with high-dividend and value styles outperforming relatively over the same period.
Pressure has come 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 since May, and credit spreads reached a 17-month high; the Bank of Korea held rates but struck a hawkish tone, while the Philippine central bank unexpectedly raised rates by 50 basis points.

Goldman Sachs lowered its KOSPI target from 12,000 to 9,000 points because greater volatility and slowing earnings momentum warrant a deeper valuation discount. But relative to the 5,550 points shown in the report, the new target still implies approximately 62% price upside, with a target date of September 2027.
The bullish case is that prices have fallen further than the earnings trajectory: the report’s first page notes that the KOSPI has fallen about 40% and its forward price-to-earnings ratio has dropped to roughly 4 times, about 3 standard deviations below its historical average. However, weaker Korean exports in early October and Taiwanese industrial production also constrain the assessment of earnings sustainability.
The opportunity extends beyond memory chips. Goldman estimates that non-memory sectors, which account for about half of the Korean index, remain undervalued by more than 30% when measured against the historical relationship between return on equity and price-to-book ratios; its preferences also include electricity, industrials and beneficiaries of corporate governance reform.

As of 22 October, the Korean semiconductor index traded at just 2.8 times earnings for the next 12 months. Goldman worked backwards from the historical relationship between profitability and valuations: the current trailing price-to-book ratio of 2.6 times implies an expected return on equity of about 23%, well below the consensus of 45%.
In the bank’s model, this equates to an approximately 65% cut to 2027 earnings from current forecasts. The bullish case therefore depends on whether actual earnings can beat the pessimistic scenario implied by prices; the model uses historical valuation relationships and assumes dividends adjust in proportion to earnings.

Foreign investors recorded net outflows of 8.9 billion dollars from Asian emerging markets excluding China this week, including 7.6 billion dollars from Taiwan and approximately 1 billion dollars from Korea. Goldman’s prime brokerage data show that hedge funds’ gross exposure to Korea has declined but remains at the 87th percentile of its five-year history; net exposure to Taiwan remains at the 92th percentile, leaving positions relatively high after reductions.
Assets in Korean leveraged ETFs fell from a peak of 53 billion dollars to 16 billion dollars, driven mainly by price declines and accompanied by sustained redemptions since late July. Both Korea and Taiwan saw dip-buying subscriptions in the most recent week, reflecting renewed buying by some investors alongside foreign selling.

Higher rates increase the discounting pressure on future earnings, so Goldman favors near-term cash flows, reasonable valuations, strong balance sheets and stable margins, while complementing AI growth exposure with sustainable dividends; in stock selection it places greater weight on earnings forecast upgrades than on simply following price momentum.
AI remains an Asian structural earnings driver favored by the bank, but its selection has narrowed to semiconductors, hardware and power infrastructure at critical bottlenecks, based on earnings visibility and investment demand rather than a broad increase in technology allocations.
Since September, regional consensus earnings forecasts for 2027 have risen 1.8%, driven mainly by Taiwan, Korea, Australia and the energy and information technology sectors. The concentrated third-quarter reporting period from mid-October to late November will bring the allocation focus back to corporate earnings performance.