KOSPI Crashes to 6,800, Yet Wall Street Says Korean Stocks Are "Cheaper Than Ever" — 3 Reasons Behind the Record Undervaluation
The KOSPI plunged 8.95% in a single day, sinking to the 6,806 level. It triggered the seventh circuit breaker of the year, and SK Hynix posted its biggest daily drop in 17 years — the worst since the 2008 financial crisis.
Yet at this very moment, Wall Street is saying the exact opposite. Bloomberg published an analysis declaring that Korean stocks are "trading cheaper than ever," while Goldman Sachs maintained its KOSPI target of 12,000 and called this a buying opportunity.
Share prices are collapsing, so why are the world's largest financial data provider and global investment banks calling Korean stocks cheap right now? Let's break down the logic — and the traps — one by one.
What Happened: The Record of 'Black Monday,' July 13
First, let's get the scale of this crash straight.
On July 13, the KOSPI closed at 6,806.93, down 669.01 points (8.95%) from the previous session. The index fell as low as the 6,783 level intraday, and after a sell-side sidecar in the morning, the year's seventh circuit breaker was triggered at 1:28 p.m.
| Category | July 13 Record |
|---|---|
| KOSPI Close | 6,806.93 (-8.95%) |
| KOSDAQ Close | 799.36 (-4.55%) |
| Samsung Electronics | KRW 254,500 (-10.70%) |
| SK Hynix | KRW 1,845,000 (-15.37%, biggest drop in 17 years) |
| Circuit Breaker | 7th activation this year |
| KRW/USD Exchange Rate | 1,503.4 |
On the flow side, foreign investors net sold roughly KRW 1.7 trillion and institutions about KRW 2.2 trillion, while retail investors single-handedly absorbed the selling with KRW 3.88 trillion in net purchases.
The direct trigger was the escalation of the US-Iran conflict around the Strait of Hormuz over the weekend. Add to that renewed skepticism toward the AI trade in US markets and profit-taking following SK Hynix's US ADR listing, and selling pressure converged on large-cap semiconductor names.
In just eight trading days in July, the KOSPI fell 18%, wiping out roughly KRW 1,213 trillion in market capitalization from the main board. This is a market where panic would be entirely understandable.
Yet Wall Street's gaze is fixed somewhere else entirely.
Bloomberg's Diagnosis: "World-Beating Gains, Yet Cheaper Than Ever"
On July 12, right before the crash, Bloomberg ran an article with a striking headline. The analysis: "Korea's World-Beating Stocks Are Now Trading Cheaper Than Ever."
The key numbers are as follows.
The KOSPI has climbed roughly 80% this year, setting a string of record highs. Yet its 12-month forward price-to-earnings ratio (P/E) has fallen to just 6.4 times.
To put 6.4x in perspective, that is an all-time low — below even the levels seen during the 2008 global financial crisis. A seemingly paradoxical situation has unfolded: the index is up 80%, yet valuations are cheaper than the financial-crisis bottom.
How Is This Possible?
The secret lies in the denominator. P/E is price divided by earnings, so when earnings forecasts grow faster than share prices rise, the multiple actually falls.
This year, 12-month forward earnings-per-share (EPS) estimates for KOSPI companies have surged roughly 170%. That is the largest annual increase since Bloomberg began tracking the data in 2006.
Analyst earnings estimates have been revised upward for 17 consecutive months — the longest streak in more than nine years. This is the result of Samsung Electronics and SK Hynix riding the AI infrastructure boom, with surging memory prices driving profit forecasts sharply higher.
A simple analogy makes it clear. If you earn $30,000 a year and buy a $300,000 house, that's 10 times your income — but if your salary jumps to $80,000, the same house costs only 3.75 times your income. Even if the house price (share price) stays the same, growing income (earnings) makes it relatively cheaper.
And with this crash shaving down the numerator (share prices) as well, valuations have compressed even further.
The Gap Versus Taiwan Is Even Starker
What Bloomberg highlighted in particular is the comparison with Taiwan.
Both are semiconductor-heavy markets benefiting from the same AI boom, yet the KOSPI's forward P/E is only about one-third that of Taiwan's TAIEX. Even as of May this year, when the KOSPI traded around 8x, Taiwan stood at 19x, the US S&P 500 at 20x, and Japan's Nikkei at 22x.
Markets riding the same AI theme — but Korea carries a price tag less than half as high.
So Why Is It This Cheap? Three Reasons the Market Doesn't Trust the Earnings
Looking at the "cheap" diagnosis alone, it seems like an obvious buy — but there are reasons things get cheap. Here is the flip side of the undervaluation, as identified by Bloomberg and Wall Street strategists.
Reason 1: Deep-Rooted Distrust of the Memory Cycle
The earnings of Samsung Electronics and SK Hynix swing heavily with memory prices. They are generating record profits on HBM and AI server demand right now, but the market hasn't shaken its doubt: "How many years can this boom really last?"
Charu Chanana, chief strategist at Saxo Markets, argued that being cheap alone is not a reason to buy, and that the market needs clear evidence the memory supercycle will continue. If hyperscalers start mentioning cost optimization even while expanding AI investment, elevated memory prices could boomerang and kill demand.
There is also a counterargument that on a PEG basis (P/E divided by earnings growth), Samsung Electronics and SK Hynix are no longer particularly cheap stocks. For balance, it's worth noting that the KOSPI's price-to-book ratio (P/B) has moved above 2x for the first time this year — record-cheap on P/E, but arguably expensive on P/B.
Reason 2: The Korea Discount Is Alive and Well
No matter how much money a company earns, if that money doesn't flow back to shareholders through dividends or share buybacks and cancellations, foreign investors will assign a lower value to the same earnings. Bloomberg assessed that due to corporate governance issues and a cyclical earnings structure dominated by Samsung Electronics and SK Hynix, the Korean market has not fully escaped the "Korea discount."
That said, there are signs of change on this front. Goldman Sachs noted that more than 60% of KOSPI-listed companies still trade below book value (P/B of 1x), and argued that the government's Value-Up program and corporate governance reforms could catalyze a re-rating of undervalued companies.
Reason 3: Leveraged ETFs Have Built an 'Automatic Selling Machine'
This is the hottest issue in the current crash.
On May 27, single-stock leveraged ETFs tracking Samsung Electronics and SK Hynix were listed on the Korean market for the first time in history. The problem was the speed at which money piled into these products.
According to CLSA Securities, on May 26 — the day before the leveraged ETFs listed — Samsung Electronics and SK Hynix accounted for 31% of total market trading value. But once leveraged ETF trading value is added in, that share soared to 84% by the end of June.
| Date | Samsung + SK Hynix Related Trading Share |
|---|---|
| May 26 (before leveraged ETF listing) | ~31% |
| End of June | ~84% (including leveraged ETFs) |
| July 8 | ~83% (including leveraged ETFs) |
In other words, roughly 80% of all trading in the market is effectively concentrated in two stocks and their derivatives.
Leveraged ETFs mechanically rebalance near the close every day to track twice the daily return. When prices fall, they must sell additional underlying shares to maintain the target ratio — that selling pushes prices down further, and the decline triggers yet more selling, creating a vicious cycle.
In fact, when the KOSPI plunged 9.99% in a single day on June 23, asset managers mechanically sold KRW 9.2 trillion worth of shares to maintain leveraged product ratios. The VKOSPI — Korea's fear gauge — spiked to an all-time high of 97.99 on June 29, and the number of KOSPI sidecar activations this year has reached 34, more than 13 times the annual average (2.5) since records began in 2002.
In a July 14 report, Goldman Sachs estimated that 62% of domestic institutional net selling on July 13 came from leveraged ETF-related liquidation. The analysis suggests that much of the crash was not a deterioration in fundamentals but mechanical selling created by product structure.
Why Wall Street Still Says Buy: The Math at Goldman Sachs and JP Morgan
Given all these risks, the conclusions from major Wall Street institutions are surprisingly clear.
Goldman Sachs: Target 12,000 Maintained — "This Is the Buying Window"
On June 3, Goldman Sachs sharply raised its 12-month KOSPI target from 9,000 to 12,000 while maintaining its Overweight rating. The rationale rests on three pillars.
First, explosive earnings growth. Goldman Sachs projects Korea's EPS growth at 320% this year — by far the highest in Asia. Even the 12,000 target was derived not from an aggressive multiple but from a conservative assumption of 8x forward P/E.
Second, an extended memory cycle. Goldman Sachs argued that the market is still underestimating the duration of the memory cycle, and raised the possibility that memory supply shortages could persist through 2028.
Third, earnings improvement spreading beyond semiconductors. The consensus earnings growth forecast for KOSPI companies excluding Samsung Electronics and SK Hynix has climbed from 20% in January to 57% recently.
And on July 14 — the day after the crash — Goldman Sachs published a report titled "KOSPI Testing Key Technical Support," keeping its 12,000 target intact. The firm advised that the KOSPI has entered oversold territory and that now is the time to buy, presenting technical support at 6,800 as the first line, 6,500 as the second, and the 6,100–6,000 zone as strong support.
JP Morgan: Bull-Case KOSPI at 15,000
JP Morgan went a step further, projecting that the KOSPI could reach 15,000 in a bull-market scenario.
The notable part is its interpretation of foreign selling. Foreign investors have net sold roughly $95 billion of Korean equities this year, with more than 90% concentrated in Samsung Electronics and SK Hynix.
JP Morgan analyzed this not as a bearish view on Korea, but as "involuntary selling" that occurs whenever the two stocks rise, because their market caps exceed emerging-market index inclusion caps. On the contrary, the firm assessed that global investors have failed to keep pace with the Korean rally, remain underweight Korea, and therefore have room for additional buying.
On leveraged ETF-driven volatility, JP Morgan diagnosed that this market — now roughly $50 billion in size — has made high volatility a structural feature of Korean equities, yet approached it as something to exploit rather than avoid. Its advice: use the extreme volatility to selectively buy high-growth memory semiconductor and tech stocks at lower prices.
Indeed, on July 14, the day after the crash, the KOSPI closed higher after a choppy session, with Samsung Electronics and SK Hynix rebounding around 3%.
The Opposite Scenario: The Trap of the 'Peak-Earnings Illusion'
For balance, let's lay out the opposing scenario clearly.
Today's undervaluation thesis rests entirely on the premise that earnings forecasts hold. If AI investment slows and memory prices roll over, the shrinking denominator (earnings) could send that 6.4x P/E leaping to 10x or 15x in short order.
This is the classic trap of investing in cyclical stocks: the "peak-earnings illusion." In cyclical industries, P/E looks lowest exactly when earnings peak — and history has repeatedly shown that buying at that moment means buying the top.
There are three warning signals to watch.
First, downward revisions to hyperscalers' AI capex guidance and an increasing frequency of "cost optimization" language. Second, a directional turn in memory spot prices and deteriorating inventory indicators. Third, a sharp decline in leveraged ETF net assets and whether liquidation-driven selling persists.
On the third point in particular, the head of Korea's Financial Supervisory Service met with the CEOs of major asset managers on July 13 to express concern over the systemic risk of single-stock leveraged ETFs, and regulation focused on tightening investor entry requirements is reportedly on the table. Depending on the direction of regulation, the supply-demand structure could shift — another variable worth monitoring.
Economy Reader Investment Insights
1. The real story behind the 'record undervaluation' is not price — it's the speed of earnings. The KOSPI's 6.4x forward P/E is not the result of falling prices, but of earnings forecasts (+170%) growing more than twice as fast as the index (+80%). Whether this undervaluation is real depends entirely on whether Samsung Electronics' and SK Hynix's earnings forecasts actually hold.
2. This crash looks more like a flow shock than a fundamental breakdown. By Goldman Sachs' estimate, 62% of institutional selling on July 13 was leveraged ETF liquidation, and Korean brokerages likewise pointed to cracks in the AI narrative and a leveraged-liquidation spiral as the main causes. If companies aren't broken and product structure merely amplified the decline, the speed of recovery could differ as well.
3. Wall Street's consensus is converging on 'buy the dip.' Goldman Sachs maintained its 12,000 target and recommended buying the oversold zone, while JP Morgan presented a 15,000 bull case and selective buying using volatility. Remember, though, that these are scenarios premised on earnings forecasts holding up.
4. Technical support levels can serve as risk-management benchmarks. Goldman Sachs' levels — 6,800 (first) → 6,500 (second) → 6,100–6,000 (strong support) — can serve as reference points for staged buying and stop-loss planning. In a high-volatility market, scaling in at each support level beats going all-in at once.
5. Leveraged ETFs are the most dangerous choice in this market. Many single-stock leveraged ETFs have fallen roughly 60% from their peaks within a month and a half of listing, with single-day drops exceeding 30%. Given the negative-compounding structure that erodes returns as prices whipsaw, leveraged products can lose money in this environment even when you call the direction correctly.
6. What really needs watching isn't the index — it's three leading signals. Hyperscaler AI capex guidance, memory spot prices and inventory indicators, and leveraged ETF net asset trends are the key variables that will determine whether this undervaluation is genuine. As long as these signals hold, the undervaluation thesis stands; the moment they break, it flips into a peak-earnings illusion.
Conclusion: The Gap Between 'Cheap' and 'Should Buy'
Let's wrap up.
The reason Wall Street sees the Korean market as historically undervalued is clear. The index rose 80%, but earnings forecasts grew 170%, pushing the forward P/E down to 6.4x — below financial-crisis levels.
Add the relative comparison — one-third the price of Taiwan, a market riding the same AI wave — and Korean equities do look cheap on the numbers. Goldman Sachs' 12,000 and JP Morgan's bull-case 15,000 targets are both grounded in this earnings growth.
But between "cheap" and "should buy" lies a bridge called verification. If the memory cycle turns as skeptics fear, today's undervaluation could prove to be the same illusion that has recurred at every cycle peak — and the flow structure built by leveraged ETFs can keep amplifying small shocks into major crashes.
What's needed now isn't reacting to every swing in the index, but coolly tracking the signals that will determine whether the earnings forecasts hold. One thing worth remembering: at the moment of maximum fear, Wall Street was busy running the numbers.
Frequently Asked Questions (FAQ)
Q1. What exactly does a KOSPI forward P/E of 6.4x mean?
A. It means current share prices are 6.4 times the expected earnings for the next 12 months. If earnings come in as forecast, the market's entire capitalization could theoretically be recouped with 6.4 years of profits — an all-time low, below even 2008 financial-crisis levels. Note, however, that this figure is based on expected earnings; if forecasts are cut, the P/E rises even at the same share price.
Q2. Is a 170% jump in earnings forecasts realistically possible?
A. It is the largest annual increase since Bloomberg began tracking the data in 2006, so yes, it is exceptional. It reflects the explosive upward revision of Samsung Electronics' and SK Hynix's profit outlooks as memory prices surged on the AI infrastructure boom, and the 17 consecutive months of analyst upgrades is itself the longest streak in over nine years. That said, memory is a cyclical industry, so this growth rate is unlikely to repeat every year.
Q3. Why do leveraged ETFs shake the entire index?
A. Single-stock leveraged ETFs mechanically rebalance every day to deliver twice the daily return. When prices fall, they must sell additional underlying shares to maintain the ratio, and that selling pushes prices down further in a vicious cycle. With the combined trading share of Samsung Electronics, SK Hynix, and their leveraged products having reached as much as 84% of the entire market, this mechanism moves the whole index when it kicks in.
Q4. Is Goldman Sachs' 12,000 target a credible number?
A. Goldman Sachs derived 12,000 by applying a conservative 8x forward P/E to its projection of 320% KOSPI EPS growth this year. The multiple itself isn't aggressive, but if the core premise — the earnings growth — fails to materialize, the target shakes along with it. Investment bank targets are directional reference points, not guaranteed predictions.
Q5. Is it okay to start buying in tranches now?
A. Goldman Sachs called it a buying window on the basis of oversold conditions, presenting support at 6,800, 6,500, and 6,100–6,000. However, with three live variables — hyperscaler AI capex guidance, memory prices and inventory data, and leveraged ETF liquidation flows — staged entries at each support level and maintaining a cash buffer are essential even if you do step in. Make your investment decisions based on your own time horizon and risk tolerance.
Investment Disclaimer
This article is analytical content based on publicly available media reports, brokerage research, and academic studies. It does not constitute a recommendation to invest in any specific stock or company, nor does it guarantee any returns. All investment decisions and their consequences are the sole responsibility of the investor.
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