JPMorgan sees Kospi as deeply undervalued but unsure of market bottom

Global investment bank JPMorgan Chase & Co. said South Korea’s stock market looks attractive after a recent sharp sell-off but cautioned that there is no clear evidence the market has bottomed.

According to sources from the financial investment industry on Monday, JPMorgan’s Korea equity strategy team recently estimated that the Kospi’s forward price-to-earnings (PER) ratio had fallen to around 4, a historic low.

Even excluding memory-related stocks such as Samsung Electronics Co., SK hynix Inc., SK square Co., SK Inc. and Samsung C&T Corp., the index’s forward PER stood at just 8.4, JPMorgan said. That valuation ranks in the lowest 11 percent of its historical range.

JPMorgan also pointed to the Kospi’s forward price-to-book ratio, which has approached 1, as evidence of deep undervaluation. PER compares share prices with earnings, while PBR measures them against book value.

JPMorgan said warning signs had emerged even before the latest sell-off, with market breadth weakening as fewer stocks participated in gains.

Despite the low valuations, however, the bank said it had found no convincing evidence in market flows that the Kospi had reached a bottom. Share buybacks by Samsung Electronics and SK hynix have ended, weakening a source of buying support, while foreign investors continue to withdraw from the Korean market.

Domestic institutional buying by pension funds and securities firms remains limited, and retail investor sentiment is fragile, it said.

Leveraged exchange-traded funds have also continued to influence the market despite a decline in their assets under management.

Potential near-term catalysts for a shift in these trends include earnings reports from memory-chip makers and hyperscalers, financial disclosures by AI model developers, stabilization in the Kospi 200 Volatility Index, and the conclusion of the U.S. midterm elections.

Over a six- to 12-month horizon, JPMorgan remains constructive on Korea’s market fundamentals, citing potential benefits from AI capital spending and improvements in corporate governance.

The bank did not provide a new Kospi target.

In June, it forecast that the index could reach 12,500 within 12 months under its base-case scenario and 15,000 in an optimistic scenario. During the first sharp market decline in July, it reaffirmed its 12,500 target, saying the Kospi would recover after the liquidation of single-stock leveraged ETFs.