Korean stocks have fallen as the Middle East conflict ripples through financial markets around the world. But Goldman Sachs Research expects Korean equities to recover and rise to fresh record highs this year.

In the first few days following the start of the war in Iran, the Korea Composite Stock Price Index (KOSPI) dropped as much as 20% from its closing high on February 26, with much of the decline coming in a 12% drop on March 4. This came after the KOSPI had surged 176% from its low on April 9, 2025, the day US President Donald Trump announced sweeping tariffs on imports from nearly all countries.

“While the peak-trough move meets the widely accepted definition of a bear market, we think it is more appropriate to view the decline in the context of the exceptionally strong gains seen in Korean equities during the past year,” writes Timothy Moe, chief Asia Pacific regional equity strategist and co-head of macro research in Asia. “We view the pullback as a correction that will likely be followed by a recovery to new highs after a period of consolidation.”

What is the forecast for Korean stocks in 2026?

Goldman Sachs Research increased its year-end 2026 target for the KOSPI to 7,000 from 6,400 previously. (The index closed at 5,583 on March 12.) While the duration and magnitude of the oil price shock is expected to determine the fundamental impact on regional earnings and economic growth, Goldman Sachs Research also raised its forecast for earnings growth in 2026 to 130% from 120%. It’s the third time our strategists have raised their earnings forecast for Korea this year.

There are several reasons Korea’s stock market will likely make a quick recovery from the recent tumult:

• A history of bouncing back: The KOSPI has tended to recover well in the 3-, 6- and 12-month periods following deep single-day declines amid spikes in geopolitical risk. Korea also tends to recover well after 10% corrections in global equities, especially when those episodes aren’t followed by a US recession.

• Positive technicals: A one-day rebound of 10% on March 5 pushed the KOSPI back above its 30-day moving average. This is part of a pattern indicating that the recent decline should be viewed as an overdue correction rather than the start of a bear market, Moe writes.

• Investor positioning: There are several areas of concern about investors being overextended in Korean equities, including hedge fund exposure to these securities that was recently at a five-year high. But Goldman Sachs Research sees signs that positioning is less extended than some investors think. Foreign investors have been net sellers this year, and retail leverage is modest relative to market capitalization. Domestic institutional investors’ ownership of Korean stocks is still below historically normal levels.

• Semiconductor strength: The main impetus for Goldman Sachs Research’s higher earnings forecast is an “exceptionally favorable” operating environment for Korea’s semiconductor companies, Moe writes. Memory prices are sharply increasing because of a record supply shortfall in both DRAM and NAND chips, owing to strong demand growth from hyperscalers. Those price hikes drive outsized bottom-line gains for memory chip producers given their high operating leverage.

• Attractive valuations: The market’s drop from recent highs has left Korean equity valuations incrementally more attractive, amid moderately higher profit forecasts. KOSPI forward price-to-earnings multiples now stand at 8.8x for the coming 12 months and 7.8x for 24 months.

Are Korean stocks overvalued?

“We therefore conclude that the market’s valuation is undemanding, noting this is based in part on our view that semiconductor memory is in an extended stronger-for-longer cycle,” Moe writes.

That said, Goldman Sachs Research points out that the Korean stock market is also home to many attractions outside the heavyweight semiconductor industry. Our strategists cite Korean companies’ participation in AI-related areas such as robotics, power equipment, and nuclear power. They also point to industrial themes spanning defense and shipbuilding, two sectors they believe are likely to benefit from US reindustrialization efforts.