KOSPI posts worst monthly performance since GFC as forward P/E falls to 4.7x, a 24-year low; risk/reward skews asymmetrically positive: Goldman Sachs
The KOSPI posted its worst monthly performance since the global financial crisis, despite recording its largest-ever one-day gain after receiving the biggest single-day foreign inflow in its history.
The KOSPI posted its worst monthly performance since the global financial crisis, despite recording its largest-ever one-day gain after receiving the biggest single-day foreign inflow in its history. Its 12-month forward price-to-earnings ratio fell to 4.7x, a new low since 2001.
Technology, food and beverage, and pharmaceuticals outperformed on a relative basis, while construction, telecommunications, and shipbuilding were the weakest-performing sectors. KOSPI earnings estimates were revised up 0.9% for the week, and the Korean won appreciated 1.0% against the U.S. dollar.
Goldman Sachs' research note says the combination of valuation compression, substantial foreign outflows so far this year, and deleveraging indicates a highly asymmetric, positively skewed risk/reward profile.
The note's underlying rationale is that extremely low valuations, upward earnings revisions, and a record single-day foreign inflow create an extremely asymmetric risk/reward setup. Foreign investors brought in $5.2 billion on Friday, a record for a single day. The note also points to the historical pattern of positive returns after drawdowns and the extremely low valuation as evidence that Korean equities have significant allocation appeal.
The note says Korean equities—particularly small- and mid-cap stocks excluding the market leaders—offer significant allocation appeal at current extremely low valuations.
In conclusion, the KOSPI's valuation has fallen to 4.7x, a 24-year low. The convergence of a record single-day foreign inflow and upward earnings revisions creates a highly asymmetric, positively skewed risk/reward profile, highlighting the allocation value of Korean equities, according to the note.
The note is positive on the KOSPI, especially small- and mid-cap stocks excluding the market leaders, as well as the technology, food and beverage, and pharmaceuticals sectors. It says the extremely low valuation—4.7x P/E—has already reflected highly pessimistic expectations, but cautions that the risks from substantial foreign outflows and deleveraging have not been fully resolved. The sustainability of subsequent fund flows should be monitored.
The catalysts identified in the note are: 1) the persistence of foreign inflows into Korea; 2) the progress of deleveraging in leveraged ETFs; and 3) the direction of KOSPI earnings revisions in August.
Technology, food and beverage, and pharmaceuticals outperformed on a relative basis, while construction, telecommunications, and shipbuilding were the weakest-performing sectors. KOSPI earnings estimates were revised up 0.9% for the week, and the Korean won appreciated 1.0% against the U.S. dollar.
Goldman Sachs' research note says the combination of valuation compression, substantial foreign outflows so far this year, and deleveraging indicates a highly asymmetric, positively skewed risk/reward profile.
The note's underlying rationale is that extremely low valuations, upward earnings revisions, and a record single-day foreign inflow create an extremely asymmetric risk/reward setup. Foreign investors brought in $5.2 billion on Friday, a record for a single day. The note also points to the historical pattern of positive returns after drawdowns and the extremely low valuation as evidence that Korean equities have significant allocation appeal.
The note says Korean equities—particularly small- and mid-cap stocks excluding the market leaders—offer significant allocation appeal at current extremely low valuations.
In conclusion, the KOSPI's valuation has fallen to 4.7x, a 24-year low. The convergence of a record single-day foreign inflow and upward earnings revisions creates a highly asymmetric, positively skewed risk/reward profile, highlighting the allocation value of Korean equities, according to the note.
The note is positive on the KOSPI, especially small- and mid-cap stocks excluding the market leaders, as well as the technology, food and beverage, and pharmaceuticals sectors. It says the extremely low valuation—4.7x P/E—has already reflected highly pessimistic expectations, but cautions that the risks from substantial foreign outflows and deleveraging have not been fully resolved. The sustainability of subsequent fund flows should be monitored.
The catalysts identified in the note are: 1) the persistence of foreign inflows into Korea; 2) the progress of deleveraging in leveraged ETFs; and 3) the direction of KOSPI earnings revisions in August.