South Korea has transformed from this year's hottest major market into the world's cheapest following a brutal tech selloff, with valuations falling to roughly half of Indonesia's. The Kospi Index's 12-month forward price-to-earnings ratio has fallen to about four, a valuation unseen since 2006 across any of the 18 markets that began the year with over $1 trillion in value. Meanwhile, the Jakarta Composite Index carries a valuation of eight times.
The market faces MSCI Inc.'s warning of a two-step downgrade and questions over investability. Before chip giants led a powerful rally earlier this year, investors had spent years complaining about the market's depressed valuations. The recent selloff is a reminder of how rapidly AI-related fears can swing sentiment in tech-heavy markets.
Fears over aggressive AI investment have widened enough to offset solid earnings and guidance, with investors weighing the impact of higher borrowing costs on AI-related stocks and demand for safe haven assets. Despite South Korea heading toward over $1 trillion in exports this year on booming chip demand, the Kospi remains unusually cheap. The index has fallen about 40% from its June peak, even as 12-month forward earnings estimates have climbed 22% over that period.
The index is still up 31% for the year. AI demand still massively exceeds supply, with the recent semiconductor stock corrections presenting a good opportunity to buy. Lingering doubts about the memory-chip cycle, AI investment spending and higher borrowing costs have left investors cautious about when sentiment will turn.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing