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Goldman Sachs Bullish on South Korean Stocks for 2024

2023.11.29

 

Key Takeaways

  • Goldman Sachs projects strong earnings growth in South Korean stocks for 2024.
  • Defense sector and semiconductor recovery cited as crucial investment opportunities.

South Korea’s Undervalued Stock Market Poised for Growth

Goldman Sachs has identified South Korean stocks as a highly undervalued segment in the Asia-Pacific equity markets, presenting a significant investment opportunity for 2024. This perspective is based on the anticipated recovery of South Korea’s semiconductor industry and the robust performance of its defense sector.

Promising Earnings Growth in Semiconductors and Defense

Goldman Sachs forecasts a remarkable 54% earnings per share (EPS) growth for South Korea’s Kospi index in 2024, followed by a further 20% growth in 2025. This optimistic projection places South Korea’s market at the forefront of potential earnings growth in the Asia-Pacific region. The investment firm highlights South Korea’s prominence as a critical player in the global semiconductor market, expecting a turnaround from recent profit declines.

The “Korea Discount” Phenomenon

Despite being Asia’s fourth-largest economy, South Korean markets often face undervaluation, a phenomenon referred to as the “Korea discount.” The Kospi index’s current price-to-book ratio of 0.92 and a price-to-earnings ratio of 18.93 suggest that many stocks may be trading below their fair value, offering attractive entry points for investors.

 

Goldman Sachs identifies the South Korean defense industry as a particularly compelling sector. With the country emerging as one of the world’s largest arms suppliers, defense stocks like Korea Aerospace Industries, Hanwha Aerospace, Hyundai Rotem, Hanwha Systems, and LIG Nex1 are poised for profit growth. These stocks offer a strategic hedge against geopolitical risks and tap into South Korea’s expanding role in the global military market.

Impact of Short Selling Ban on Market Performance

The recent ban on short selling in South Korea, effective until the end of June 2024, adds another layer of optimism for the market. Historically, the Kospi index has shown strong performance following short-selling bans, with gains of at least 10% over the subsequent six months. This regulatory move could further bolster investor confidence and market momentum.

 

The Kospi index has already seen an increase of over 12% this year, outperforming most major Asian stock markets, excluding Japan. Goldman Sachs’ optimistic outlook for South Korean stocks in 2024, driven by sectors like semiconductors and defense, alongside favorable market valuations, suggests that this trend may continue, offering lucrative opportunities for investors.

 

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