KOSPI Poised for Tactical Breakout, Goldman Sachs Says, Citing Shifting Investor Flows

South Korea's KOSPI index is positioned for a near-term "tactical breakout" as retail investor selling pressure wanes and institutional capital returns, according to a note from Goldman Sachs. The investment bank sees a favorable setup for the index to push above its current range, though it also flagged potential headwinds for October.

Catalysts for a Breakout

In a note published Wednesday, Goldman Sachs analyst Chris Cha outlined several factors supporting a more bullish outlook. He observed that the significant selling pressure from retail investors, which has defended the 7,000 level, is now showing signs of exhaustion.

Key drivers identified by the firm include:

• Shifting Capital Flows: Retail investors net-sold approximately 18 trillion won in September, more than they purchased in July and August combined. This selling is being met by renewed interest from institutions, with local firms on a three-week buying streak and foreign investors turning into net buyers this week after five weeks of selling.
• Semiconductor Strength: Momentum in the memory chip sector is strong, with fourth-quarter DRAM contract prices expected to rise by double-digits quarter-over-quarter, countering more bearish forecasts.
• Corporate Payouts: A 30 trillion won third-quarter dividend from Samsung Electronics is driving buying activity ahead of its record date. Further buybacks and dividends are providing a 5% to 7% yield backstop for the market into the end of the year.

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Goldman Sachs suggests these factors could fuel an institution-led rally, pushing the KOSPI above the 7,000-to-7,200 zone as market sentiment pivots toward a more risk-on environment.

October Headwinds on the Horizon

Despite the positive near-term outlook, Cha cautioned that investors should be aware of two specific headwinds building into October. The first is the market impact following Samsung's ex-dividend date on Sept. 29.

More significantly, the analyst pointed to a "buyback expiration cliff." Major index constituents like Samsung and SK Hynix have reportedly front-loaded their share repurchase programs. Once this corporate support expires, the KOSPI's trajectory will become entirely dependent on sustained buying from foreign institutional investors, the note concluded.