BlockBeats News, July 19th. Amidst a global semiconductor sell-off and momentum reversal, the South Korean KOSPI index has plummeted nearly 25% from its high on June 22nd, with a further 8.8% drop this week alone. As of July 16th, the forward 12-month P/E ratio has fallen to 5.78 times, below the trough level of the 2008 global financial crisis, reaching the lowest point since 2004.

Goldman Sachs pointed out in its July 17th weekly report that even with a 41% downward revision in earnings per share (the worst level during the financial crisis), calculated at a valuation of 13 times the EPS trough in 2008, the corresponding level for the KOSPI is still around 8965 points, significantly higher than the current level, indicating that the current valuation is showing a positively skewed risk-return characteristic. Looking at the P/B ratio, the forward P/B ratio has dropped to 1.43 times, while the forward ROE remains around 25%, a rare deviation between the two.

UBS added that excluding Samsung Electronics and SK Hynix, the overall forward P/E ratio of the KOSPI is 8.79 times, still below historical averages. Foreign capital trends are seeing a marginal shift: this week, foreign investors turned net buyers of about 19 billion Korean won, mainly flowing into the automotive and retail sectors, while the technology sector saw net sales of about 76.6 billion Korean won; the Korean won appreciated by 1.2% against the US dollar this week. However, Goldman Sachs' Korean Stock Risk Barometer reading is -2.7, still in the deep risk aversion zone.

On the regulatory front, the South Korean government has issued a series of new rules regarding single-stock leveraged ETFs: starting from August 5th, the cash collateral requirement will increase from about 3 million Korean won to 30 million Korean won, starting from August 19th, alternative collateral will be prohibited, new product listings will be suspended, existing product marketing will be immediately halted, and the minimum trading unit is planned to increase from 1 unit to 20 units in November. UBS believes that the 30 million Korean won full cash collateral requirement will significantly limit retail participation, but the market has already partially deleveraged—the total size of single-stock leveraged ETFs has decreased from a peak of around 2.4 trillion Korean won on June 25th to about 1.7 trillion Korean won.

Goldman Sachs pointed out that although margin lending balances have decreased from a peak of 38 trillion Korean won to 33 trillion Korean won, Korean investor deposit balances have risen to 110 trillion Korean won, resulting in a significant decline in the ratio of financing balance to deposits, limiting overall leverage and systemic risk. At the strategic level, Goldman Sachs maintains a target price of 12,000 points and suggests buying on dips, while UBS maintains a target price of 9,200 points and shifts to a barbell strategy, adding defensive end allocations such as consumer, healthcare, and construction and removing sectors with significant previous gains in cyclicals and growth. Both institutions recognize that Korean equities are at historically extreme low valuations, but have different approaches to dealing with short-term volatility and uncertainty in demand for AI.