---
title: "Leverage Regulations, Valuations, and the Latest Trends in Foreign Capital: Wall Street's Newest Take on Korean Stocks"
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/293111970.md"
description: "Affected by a global semiconductor sell-off, the KOSPI index has fallen to its lowest valuation level since 2004. Goldman Sachs and UBS point out that even assuming significant downward revisions to earnings, current valuations still offer a positive risk-reward ratio. Foreign capital turned net buyers of the automotive and retail sectors this week, but risk-averse sentiment remains strong in the market, with volatility expected to persist"
datetime: "2026-07-19T04:11:53.000Z"
locales:
  - [zh-CN](https://longbridge.com/zh-CN/news/293111970.md)
  - [en](https://longbridge.com/en/news/293111970.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/293111970.md)
---

# Leverage Regulations, Valuations, and the Latest Trends in Foreign Capital: Wall Street's Newest Take on Korean Stocks

The combination of a global semiconductor sell-off and a momentum reversal wave has pushed the Korean stock market into a historically undervalued range. The KOSPI index has accumulated a decline of nearly 25% from its high on June 22, dropping another 8.8% this week alone, with its forward P/E ratio falling to the lowest level since 2004. In their latest reports, both Goldman Sachs and UBS noted that current valuations now present a positive risk-reward ratio, although near-term volatility is expected to continue.

In its Korea weekly report released on July 17, Goldman Sachs pointed out that **the 12-month forward P/E ratio of the KOSPI had fallen to 5.78x as of July 16, below the trough level during the 2008 global financial crisis and marking the lowest point since 2004. Even assuming earnings are revised down by 41%—the worst-case scenario during the financial crisis—and calculating based on the valuation multiple at the 2008 EPS trough, the KOSPI still exhibits a positive risk-reward ratio.** UBS maintained its KOSPI target price of 9,200 points (implying a 9x NTM P/E ratio) and shifted its portfolio strategy to a barbell approach.

There has been a marginal shift in foreign capital flows. Goldman Sachs data shows that foreign investors turned net buyers of the KOSPI this week, with inflows concentrated mainly in the automotive and retail sectors, amounting to approximately KRW 19 billion. The Korean won appreciated 1.2% against the US dollar and 1.5% against the Japanese yen this week. However, Goldman Sachs’ Korea Equity Risk Barometer currently reads -2.7, remaining in deep risk-averse territory.

## Valuation Breaks Historical Lows, Risk-Reward Ratio Turns Positive

The KOSPI fell 8.8% this week, with technology, construction, and retail sectors leading the declines, while chemicals, banking, and insurance proved relatively resilient. The MSCI Korea Index dropped 10.2% in USD terms.

Goldman Sachs stated that **KOSPI forward earnings are highly correlated with index performance, and the recent index decline appears significantly excessive relative to earnings prospects. Citing stress test data, the report noted: even assuming a 41% downward revision in earnings per share (EPS)—equivalent to the worst-case scenario during the global financial crisis—and calculating using the historical valuation multiple (13x) at the 2008 EPS trough, the implied KOSPI level would be around 8,965 points. This is still far above current levels, indicating that current prices already possess positively skewed risk-return characteristics.**

From a cross-sectional valuation perspective, the KOSPI’s 12-month forward price-to-book (P/B) ratio has retreated from its peak on June 22 to 1.43x, while the forward return on equity (ROE) for the same period remains high at approximately 25%. Goldman Sachs pointed out that ROE has historically been the core driver of the KOSPI’s P/B ratio, and the current divergence between valuation and fundamentals is rare.

UBS’s report added that if Samsung Electronics and SK Hynix are excluded, the overall forward P/E ratio of the KOSPI is 8.79x, which remains below the historical average, further corroborating the extent of the market’s overall undervaluation.

## New Regulations on Single-Stock Leveraged ETFs Implemented, Impact Expected to Be Limited

UBS’s report detailed a series of regulatory measures introduced by the Korean government targeting single-stock leveraged ETFs: the minimum cash margin requirement will be significantly increased from approximately KRW 3 million to KRW 30 million starting August 5; the use of alternative collateral will be prohibited from August 19; approvals for new product listings are suspended, and marketing activities for existing products are immediately banned; and the minimum trading unit is scheduled to increase from 1 unit to 20 units in November.

UBS analyzed that **suspending new listings and the KRW 30 million all-cash margin requirement are the most substantive measures for curbing speculative trading. Considering that KRW 30 million represents about 7% of the total assets and 27% of the financial assets of households in the third income quartile, this threshold will significantly compress the participation space for retail investors. In contrast, extending investor education periods and raising the minimum trading unit (20 units, equivalent to about $190) are expected to have limited practical effects.**

Notably, UBS pointed out that **spontaneous market adjustments had already completed part of the "de-leveraging" process before the new regulations took effect—the total size of single-stock leveraged ETFs (including those listed domestically and abroad) has decreased from a peak of about KRW 2.4 trillion on June 25 to approximately KRW 1.7 trillion currently. If investors held positions since May 27 (the listing date of domestic single-stock leveraged ETFs), paper losses would reach 30% to 32%; if held since June 25 (the peak price), losses would be as high as 44% to 55%.**

****

## Overall Scale of Leveraged ETFs Shrinks, Margin Risks Remain Controllable

Goldman Sachs data shows that affected by recent market sell-offs, the total scale of domestic leveraged ETFs has fallen back to levels seen before the launch of single-stock leveraged ETFs. Although the proportion of leveraged ETFs in the Korean ETF market continues to rise, as of July 16, their scale still accounted for only about 5% of the total ETF assets under management (AUM), indicating a relatively limited overall size.

Regarding margin risks, Goldman Sachs cited data showing that as of July 15, the margin call receivable ratio rose to 3.8%, and broker receivables increased to KRW 1.5 trillion, with both indicators trending upward. The balance of margin financing and securities lending dropped from a peak of KRW 38 trillion to KRW 33 trillion. However, measured by market-value-adjusted ratios, this ratio remains stable at around 0.5%. Meanwhile, investor deposit balances have risen to KRW 110 trillion, causing a significant decrease in the ratio of margin financing and securities lending balances to deposit balances, indicating that systemic risks from overall leverage exposure are limited.

Retail investor fund flows have shown some resilience. Goldman Sachs data indicates that despite continued market turbulence, net inflows from retail investors into both traditional ETFs and leveraged ETFs have not ceased.

## Foreign Capital Turns Net Buyer, Structural Divergence Persists

Goldman Sachs data shows that foreign investors recorded net purchases of approximately KRW 19 billion in the KOSPI market this week, mainly flowing into the automotive (net buy KRW 19.6 billion) and retail (net buy KRW 11.8 billion) sectors, while the technology sector saw net sales of about KRW 76.6 billion, showing that divergence among sectors by foreign capital remains significant. Institutional investors were net sellers of KRW 119.1 billion this week, while retail investors were net buyers of KRW 95.3 billion.

Looking at cumulative foreign capital flows year-to-date, foreign investors have cumulatively net sold approximately KRW 16.1 trillion worth of KOSPI stocks this year, meaning the overall outflow pressure has not fundamentally changed. UBS’s report warned that given the uncertainty in AI demand prospects and potential fluctuations in earnings expectations for Samsung Electronics and SK Hynix, market volatility may remain high in the short term—which in turn could help further compress the AUM of leveraged ETFs.

## Strategic Divergence: Goldman Sachs Bullish on Valuation, UBS Shifts to Barbell

Facing continued volatility, the two institutions have adopted different strategic orientations. Goldman Sachs maintains its 12-month target price for the KOSPI at 12,000 points, believing that current valuations fully reflect pessimistic expectations and that the positive risk-reward ratio supports buying on dips.

UBS, while maintaining its target price of 9,200 points, has shifted its portfolio strategy to a barbell structure to cope with recent uncertainties in AI demand and potential fluctuations in the earnings outlook for Samsung Electronics and SK Hynix. New additions such as Shinsegae (consumer), Celltrion (healthcare), and Samsung E&A (construction) represent defensive and value-oriented allocations, while removed targets were concentrated in cyclical and growth sectors that had seen significant gains earlier.

UBS pointed out that the high turnover rate of single-stock leveraged ETFs—equivalent to 54% of SK Hynix’s trading volume and 24% of Samsung Electronics’ trading volume since July—means that ETF-related fund flows may have a greater impact on underlying stocks than surface data suggests. This structural disturbance is expected to gradually subside after tighter regulations, but higher volatility will likely persist in the short term.

Risk Warning and Disclaimer

Investing involves risks; please proceed with caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial status, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investors assume full responsibility for any actions taken based on this content.

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