UBS further lowers South Korean stock target! Exchange rates and profit expectations under pressure, recovery expected in 2027

Following a previous downgrade in September this year, UBS has once again lowered its 12-month target for the Korean stock market, reducing the KOSPI target from 8,000 points to 7,500 points—a 6% cut—corresponding to a forward price-earnings ratio (P/E) of 6 times. This marks another adjustment.

According to WindTrading Desk, UBS pointed out in its October 29 report that the core drivers of this downgrade are exchange rate impacts and bottom-up earnings revisions. Intensifying macroeconomic pressures will drag down earnings per share (EPS), and the equity market has not yet fully priced in the complete impact of the strengthened Korean won.

Recently, KOSPI has pulled back about 10% from its high, nearing its downside value zone of 5,000 points (corresponding to a 4x P/E). The KOSPI 200 put/call ratio has touched minus one standard deviation, a level which has historically signaled market overselling. UBS believes the current market risk aversion is excessive, and assuming no persistent earnings downturn or exogenous shocks, further downside is limited.

Looking ahead, UBS expects KOSPI will remain under pressure before year-end but is optimistic about a recovery into 2027, supported by strong EPS growth, improved shareholder returns, easing liquidity constraints, and the end of the rate-hiking cycle. UBS sets its upside target at 9,300 points (corresponding to an 8x P/E).

Double Drag from FX and Earnings

This is the second time UBS has adjusted its KOSPI target this year. On September 18, UBS analyst Yong-Suk Son lowered the 12-month target from 8,800 to 8,000 points—nearly a 10% drop—citing rising interest rates, a stronger won, and higher oil prices as macro headwinds. At the time, UBS noted that 10-year government bond yields had jumped from 3.4% at the start of the year to 4.5%, the Bank of Korea raised rates twice since July, and oil prices surpassed $100 per barrel.

About six weeks later, UBS acted again, cutting the target further to 7,500 points. The main drivers behind this cut are the exchange rate and bottom-up EPS revisions. According to UBS analysis, the won has appreciated by about 15% since June. If all else is equal, this will drag down KOSPI EPS by about 2% in 2026 and 10% in 2027. Meanwhile, the consensus monthly EPS revision for October was only -0.5%, which does not yet fully reflect the impact of the stronger won, implying potential for further downward adjustments ahead.

At the sector level, chemicals, entertainment, defense, automobiles, consumer discretionary, diversified financials, internet, and cosmetics are expected to see the largest downward earnings revisions for 2026 and 2027; while energy, transportation, construction, and insurance are expected to see upward revisions.

Foreign Investors Continue Net Selling, Market Sentiment Hits Extremes

Fund flows reveal another side of recent market pressure. Since October, foreign investors have net sold a total of 19.0 billion won, becoming the main source of selling pressure, partially absorbed by corporate buybacks (9.9 billion won), retail investors (5.8 billion won), and local institutions (3.2 billion won).

However, UBS notes signs of marginal improvement in liquidity: the scale of foreign net selling has narrowed recently and even turned into net buying this week; retail investors have turned into net sellers over the past two weeks, while corporate buybacks are expected to gain support as SK Hynix restarts its buyback program; pension funds remain cautious, but if KOSPI approaches its downside value zone, asset allocation targets may trigger their entry into the market.

In terms of valuation and sentiment indicators, KOSPI is currently trading at 1.1x NTM price-to-book ratio—basically in line with historical averages—with a dividend yield of 2.7% (one standard deviation above the historical average), providing some valuation support. Excluding Samsung Electronics and SK Hynix, KOSPI’s NTM price-to-book ratio is only 0.9x (minus 0.6 standard deviations), and NTM P/E is 6.6x (minus 2.6 standard deviations), both at historically low levels.

EPS Reset, Not a Downturn Cycle; Recovery Expected in 2027

Although short-term pressures persist, UBS maintains a relatively optimistic medium-term outlook for the Korean equity market. UBS forecasts KOSPI EPS growth of +258% in 2026 (vs. market consensus of +278%) and +33% in 2027 (market consensus +38%), with its estimates already factoring in FX pressures and thus relatively conservative compared to consensus.

UBS emphasizes that the current EPS downgrades are more of a “reset” driven by currency effects, not the start of a sustained downturn. The tech sector will remain the largest contributor to earnings growth in 2026, with battery materials, utilities, and chemicals expected to take the lead in 2027.