[Edaily Reporter Bang Sung Hoon ] The South Korean stock market has gone from being “this year’s hottest market” to “the world’s cheapest market.” Due to a plunge in tech stocks, the KOSPI’s valuation has fallen to about half that of the Indonesian stock market.

According to data compiled by Bloomberg on the 23rd, the KOSPI’s 12-month forward price-to-earnings ratio (P/E ratio) has fallen to about 4. Among the 18 global stock markets whose market capitalization exceeded $1 trillion (approximately 1,327 trillion won) at the start of the year, this is the first time since 2006 that the ratio has reached such a low level.

The forward P/E ratio is calculated by dividing the stock price by the earnings per share (EPS) expected over the next year. The lower the ratio, the cheaper the stock price is relative to the company’s expected earnings.

The forward P/E ratio of Indonesia’s Jakarta Composite Index stands at around 8 times. The Indonesian stock market has faced questions about its investment suitability, including a warning from Morgan Stanley Capital International (MSCI) that it could be downgraded by two notches. This means the Korean stock market is trading at half the price of even this market.

This also stands in stark contrast to Taiwan, another semiconductor powerhouse like South Korea. The forward P/E ratio of Taiwan’s Weighted Index remains at around 16 times.

Until major semiconductor stocks led a strong rally earlier this year, investors in the Korean stock market had been voicing dissatisfaction for years over the so-called “Korea discount”—that is, low valuations. Bloomberg recently noted that the recent sharp decline demonstrates how quickly AI-related concerns can shake investor sentiment in a market with a high concentration of tech stocks. It added that questions are also being raised about whether traditional valuation metrics can be trusted during a period of high uncertainty driven by technological change.

Hui-ling Lo, Executive Director at ACG Management, said, “Growing concerns over what had been aggressive AI investments have offset solid earnings and outlooks,” adding, “Investors are weighing not only the demand for safe-haven assets but also the impact that rising borrowing costs will have on AI-related stocks.”

The fundamentals of the South Korean economy remain solid. Driven by strong demand for semiconductors, South Korea’s exports are projected to exceed $1 trillion this year. The Bank of Korea also stated that growth rates for this year and next will be “significantly higher” than previously forecast.

Nevertheless, investors are maintaining a cautious stance as doubts persist regarding the memory semiconductor business cycle, AI investment spending, and higher borrowing costs. Opinions are divided on when investor sentiment will turn around.

Some analysts suggest that this sharp decline could present a buying opportunity at lower prices. While the KOSPI has fallen about 40% from its June high, 12-month forward earnings estimates have actually risen 22% over the same period. However, compared to the start of the year, the KOSPI remains 31% higher.

Mark Matthews, Head of Asia Research at Julius Baer, appeared on Bloomberg TV and said, “AI demand still far outstrips supply,” adding, “A major correction like the one seen in semiconductor stocks over the past few days—especially overnight—presents a good buying opportunity.”