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Investing.com -- Citigroup raised its KOSPI target to 10,000 from 8,500, citing continued memory earnings growth and strong fiscal stimulus by the South Korean government, according to a Citi research note.

The new target is based on 2.3x book value per share, implying 9.5x earnings per share, slightly below the 20-year average of historical 12-month forward EPS, Citi said.

South Korea’s FY26 net profit is forecast to improve by 231% year-on-year, up from a prior estimate of 177% year-on-year based on Quantiwise consensus, driven by semiconductor-driven GDP growth and improved fundamentals across Korean manufacturing industries, the note said.

Citi identified three tailwinds supporting its upgraded outlook: semiconductor exports, trickle-down effects from that sector, and expansionary fiscal policy.

The broker flagged an equal number of headwinds, tightening monetary policy, capital outflow pressure from foreign equity holders alongside Korean won weakness, and a potential resumption of rebalancing of domestic equities by Korea’s National Pension Service (NPS).

"Capital outflow pressure from foreign equity investors could continue in the near term, led by rebalancing and profit taking," Citi said in the note.

The NPS could gradually resume rebalancing of Korean equities if the KOSPI moves above the 9,000-10,000 level in 2026, Citi said.

Citi expects earnings growth in 2027 to broaden beyond artificial intelligence to encompass robotics, exporters and manufacturing companies, while ongoing memory supply constraints are expected to persist, extending the sector’s upcycle.

"Given growth is centered on high-quality stocks, we recommend a selective approach to Korean equities, focusing on stocks with resilient earnings outlook driven by AI chip demand, U.S.-Korea co-operation in manufacturing industries such as shipbuilding, power and nuclear, as well as wealth effect," Citi said.

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