Goldman Sachs: AI spending tailwinds cannot offset selling pressure on South Korean stocks, as the size of leveraged ETFs has halved from its peak.

Goldman Sachs noted in its latest South Korea market weekly report that despite foreign investors’ consecutive net purchases of the KOSPI recently and Alphabet’s upward revision of its AI capital expenditure expectations further reinforcing the semiconductor demand narrative, the Korea Composite Stock Price Index (KOSPI) still fell around 2% last week. By sector, construction, software and telecom held up relatively well, while securities, automotives and insurance led declines. In terms of market performance, the KOSPI extended its sell-off on July 24, closing 5.72% lower at 6,690.62 points, hitting an intraday low of 6,650.41 points, with programmatic trading briefly suspended. Yonhap News Agency reported that rising Middle East tensions suppressed risk appetite, with foreign investors and institutions combined net selling roughly 5.2 trillion won that day, while retail investors net bought around 5.18 trillion won. Goldman Sachs holds that foreign capital inflows are mainly concentrated in the tech sector, but the South Korean market still faces significant medium-term capital outflow pressure, and foreign holdings in the semiconductor sector are near historical lows. Meanwhile, the KOSPI’s 12-month forward earnings per share (EPS) forecast was cut by 0.4%, with the automotive sector facing the largest pressure on earnings expectation adjustments. Margin leverage is also cooling: the report shows that South Korean retail investors’ margin balance has dropped from a peak of $25 billion to $22 billion, and the size of leveraged ETFs has fallen from $53 billion to $26 billion. For South Korea’s stock market, AI capital expenditure remains a core support, but amid downward earnings forecast revisions, light foreign investor positioning and fluctuating risk appetite, the index’s short-term volatility may continue to expand.