Stock Markets July 4, 2026 06:44 AM

KOSPI's Forward P/E Drops to Levels Not Seen Since Financial Crisis as Foreign Selling Accelerates

Index falls 3.8% in a week as foreigners lead outflows; Goldman Sachs stress test still shows upside under deep earnings cuts

By Priya Menon
Share
Twitter Reddit Facebook LinkedIn

South Korea's benchmark stock index fell 3.8% in the week ending July 3, while its 12-month forward price-to-earnings ratio declined to the lowest level since the Global Financial Crisis, according to a Goldman Sachs note. Accelerated foreign selling, concentrated in technology names, drove much of the weakness, though analysts point to earnings-revision improvements and a stress-test scenario that implies potential upside even after substantial earnings downgrades.

KOSPI's Forward P/E Drops to Levels Not Seen Since Financial Crisis as Foreign Selling Accelerates
Summarize with
ChatGPT Perplexity Claude Grok Gemini

Key Points

  • KOSPI declined 3.8% in the week ending July 3, with its 12-month forward P/E falling to the lowest level since the Global Financial Crisis according to Goldman Sachs.
  • Foreign investors were net sellers of 19.87 billion won during the week, largely focused on technology stocks; year-to-date foreign net selling reached 157.50 billion won.
  • Earnings revisions were mixed but overall positive, with KOSPI 12-month forward EPS revised up 4.8%; Goldman Sachs' stress test indicates an illustrative KOSPI level of 8,750 under a 33% EPS cut and an 11.4x trough multiple.

South Korea's main equity gauge weakened sharply last week, slipping 3.8% as foreign investors stepped up selling pressure and the market's 12-month forward price-to-earnings multiple dropped to levels not seen since the Global Financial Crisis, Goldman Sachs said in a recent analyst note.

Net foreign disposals of KOSPI-listed stock totaled 19.87 billion Korean won in the week ended July 3, with most of the outflows coming from technology shares. On a year-to-date basis, foreigners have been net sellers of 157.50 billion won on the KOSPI.

Domestic players offset some of the overseas exit. Local institutions and retail investors recorded net purchases of 8.16 billion won and 11.12 billion won respectively, partially counterbalancing the foreign net selling.

Performance across sectors was uneven. The Banking, Securities and Leisure sectors outperformed the broader market during the week, while Technology, Insurance and Retail lagged, falling 7.6%, 5.7% and 5.7% respectively relative to the index.

Despite the price declines, analysts observed an upward movement in earnings expectations. Goldman Sachs reported a 4.8% upward revision to KOSPI 12-month forward earnings per share, with Leisure recording the strongest upward revision and Chemicals registering the largest downgrade among sectors.

To assess downside risk, Goldman Sachs ran a stress-test scenario. That exercise assumed a 33% reduction in earnings - a downgrade consistent with the median drawdown across six prior market troughs since 2008 - and applied the median forward P/E at historical earnings-bottoms of 11.4 times. Under those assumptions, the bank calculated an illustrative KOSPI level of 8,750. That figure was derived by applying the 11.4x trough multiple to earnings of 771, which the note said is the result of cutting current consensus next-twelve-months EPS of 1,150 by 33%.

Market risk indicators moved in tandem with the price action. The Korea Equity Risk Barometer, tracked as the GSSRKERB Index, declined to -1.5, a level the analysts described as "risk-adverse territory." The research team added that the barometer functions as a contrarian signal under conditions where large market moves have already occurred and that it points toward more constructive equity returns on a forward-looking basis.

Technical measures also softened. The KOSPI's Relative Strength Index dropped to its weakest reading since the end of March 2026, and the index breached its 50-day moving average during the week.

Currency and fixed-income moves accompanied the equity declines. The Korean won strengthened 0.3% against the U.S. dollar over the week but weakened 0.2% versus both the Japanese yen and the euro. On the sovereign curve, the three-year Korea Treasury bond yield rose to 3.75% and the 10-year yield climbed to 4.20%.

Broadly, MSCI Korea fell 5.5% over the week and now trades at a 55% discount to the MSCI AC World index on a forward P/E basis.

Risks

  • Sustained foreign outflows, particularly from technology stocks, could continue to weigh on equity prices and heighten sector-specific pressure on Technology, Insurance and Retail.
  • A further deterioration in earnings could push valuations lower - the stress-test assumed a 33% earnings downgrade which materially reduces consensus EPS and yields a substantially lower implied market level.
  • Rising bond yields, with the three-year and 10-year Korea Treasury bond yields moving up to 3.75% and 4.20% respectively, may pressure equity valuations and increase financing costs for issuers.

More from Stock Markets

Administration Opens 'Trump Accounts' as 250th Independence Day Events Begin Jul 4, 2026 Continental to Exit Industrial Arm with ContiTech Sale to Lone Star for €4 Billion Jul 4, 2026 Continental to divest ContiTech plastics and rubber arm to Lone Star for €4 billion Jul 4, 2026 AI-led equity gains are reshaping currency moves through hedging flows Jul 4, 2026 SK Hynix Weighs Modest Underwriting Fee Ahead of U.S. ADR Listing Jul 4, 2026