KOSPI plunges 8%: why Goldman Sachs still sees 12,000

South Korea’s KOSPI plunged on Monday as a global chip selloff turned into a full-blown stress test for one of the world’s hottest equity markets.

The benchmark index triggered a Level 1 circuit breaker just minutes after the open, falling as much as 8.4% to around 7,477 in early trade.

Samsung Electronics and SK Hynix, which together dominate the index, both dropped about 10%, while the won weakened to around 1,554 against the dollar.

The scale of the rout was striking because it came just a day after Nvidia announced fresh AI partnerships with SK Hynix and Naver, underlining how quickly panic overwhelmed even positive industry news.

Broadcom, bad jobs data and a leverage time bomb

The selloff had three clear triggers and the first came from Wall Street, where Broadcom’s latest AI chip guidance fell short of stretched expectations by about $1.2 billion.

That was enough to torch sentiment across semiconductor names and push the Philadelphia Semiconductor Index down 10.26% on Friday, its worst session since March 2020.

The Nasdaq Composite fell 4.18%, showing how exposed the wider equity market has become to the AI trade.

The second blow came from the US labour market. Stronger-than-expected non-farm payrolls revived fears that the Federal Reserve may have to keep policy tighter for longer, or even consider another hike if inflation proves sticky.

The 10-year Treasury yield rose above 4.5%, putting fresh pressure on long-duration growth stocks and high-valuation chip names.

The third factor was domestic and more dangerous, as margin debt in South Korea has climbed to record levels of about 38 trillion won.

At the same time, newly launched single-stock 2x leveraged exchange-traded funds tied to Samsung and SK Hynix have added a mechanical selling risk.

Also read: Top 3 reasons Japan’s Nikkei 225 Index is falling today

How Samsung and SK Hynix became Korea’s Achilles heel

The KOSPI’s weakness is also the flipside of its earlier strength. Before the latest rout, the index had surged more than 90% this year, making it one of the best-performing major benchmarks in the world.

But that rally was not broad-based as it was powered overwhelmingly by Samsung Electronics and SK Hynix.

Together, the two chipmakers account for more than half of the KOSPI’s market value and roughly 70% of its year-to-date gains.

That concentration turned a semiconductor correction into a market crisis, and when investors sold the AI trade, they were effectively selling Korea.

Lee Kyung-min of Daishin Securities warned that with Samsung and SK Hynix making up about half the market, short-term volatility becomes inevitable when leading stocks enter a phase of cooling after an overheated rally.

There was also a liquidity angle as global investors have been preparing for large capital calls around mega listings, including the anticipated SpaceX IPO.

Goldman’s conviction: Why 12,000 is not off the table yet

The collapse does not mean Goldman Sachs has abandoned its bullish call, as the bank is still holding a 12-month KOSPI target of 12,000.

The reason is earnings, as Goldman’s thesis rests on the view that Korea’s semiconductor cycle will last longer than investors expect.

Broadcom’s guidance disappointed against extreme expectations, but it still pointed to explosive year-on-year growth in AI chip revenue.

The AI trade may have been overpriced in the short term, but the underlying demand for high-bandwidth memory and AI infrastructure has not disappeared.

Nvidia’s multi-year partnership with SK Hynix also signals that the world’s most important AI chipmaker still needs Korean memory suppliers at the centre of its data-centre buildout.

Han Ji-young of Kiwoom Securities said that the semiconductor-led KOSPI earnings momentum and low valuation burden remain intact.