MXAPJ rose 0.5% this week, with Greater China rebound and oil spike dominating the market narrative
AI summary card
MXAPJ rose 0.5% this week, with Greater China rebound and oil spike dominating the market narrative
Goldman Sachs believes Asia Pacific ex-Japan equities experienced sharp rotation: previously strong markets pulled back, Hong Kong and ASEAN were relatively resilient, earnings revisions cushioned the momentum reversal, but Korea leveraged ETFs, foreign flows, oil prices, and tariffs remain key risks.
- MXAPJ rose 0.5% this week, with Taiwan and China A each up about 3%, Hong Kong up about 2%, and the Philippines, Indonesia, and Korea each down about 2%.
- Brent crude rose 16% this week, returning to US$100/bbl for the first time since May.
- Since the MXAPJ peak on June 22, year-to-date leading markets such as Korea, Taiwan, and China A have pulled back, while Hong Kong and ASEAN have risen modestly.
- The Momentum factor has fallen about 20% from its peak, while the Earnings Revision factor has fallen only about 8%, showing that earnings revisions have provided some cushion against the reversal in price momentum.
- Korea leveraged ETF AUM has fallen from a peak of US$53bn to US$26bn, but rebalancing flows still account for about 10-15% of daily turnover on high-volatility days.
Report interpretation
Overview
This report is Goldman Sachs' weekly strategy update on Asia Pacific ex-Japan equity markets. The report notes that MXAPJ closed up 0.5% this week amid high volatility, with Greater China rebounding as foreign outflows slowed, Korea remaining volatile, and commodities leading gains as oil returned to US$100/bbl. On the macro side, US-Iran tensions persisted and the Trump administration announced new tariffs; China's fiscal data improved but consumption slowed, and the market is looking to the July Politburo meeting for a stronger easing signal.
Core views
The core view is that the market is rotating away from previously AI- and momentum-driven assets toward more diversified regions and sectors. Korea, Taiwan, and China A, which had led performance year-to-date, pulled back after the June 22 peak, while Hong Kong and ASEAN strengthened modestly. At the sector level, Info Tech, Industrials, and Materials saw more pronounced pullbacks, while Health Care, Financials, and Consumer sectors improved relatively. The earnings revision factor fell less than the momentum factor, indicating that earnings expectations are still providing some support to the market.
Analysis framework
The report tracks index performance, regional and sector allocation, valuation, EPS revisions, foreign and retail fund flows, ETF leverage exposure, volatility, policy risk, and macro indicators across multiple dimensions, and uses the MXAPJ market/sector scorecard to present Goldman Sachs' strategy views.
Methodology notes
regional and sector scoring framework
Compares MXAPJ markets and sectors horizontally through price returns, valuation z-scores, earnings growth, ROE, EPS revisions, and foreign fund flows.
momentum reversal and earnings revision cushion
The report compares the drawdowns of the Momentum factor and the Earnings Revision factor to assess whether the reversal in price momentum is supported by earnings expectations.
regional drawdown risk monitoring
RADaR shows that regional market drawdown risk has declined significantly after the recent sharp sell-off, but this does not eliminate liquidity, leverage, and policy risks.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- MXAPJcore benchmark index
- Strengths
- Still rose 0.5% this week, with the 12-month target of 1,080 implying about 28% upside versus the current 844.
- Weaknesses
- Recent volatility has been elevated, and previously strong regions and momentum factors have pulled back.
- Comparison
- Outperformed the USA and AC World this week, but internal market divergence is pronounced.
- Risks
- Tariffs, oil prices, geopolitics, foreign outflows, and Korea leveraged ETF rebalancing.
- TaiwanOW regional allocation, with high exposure to AI and the tech supply chain
- Strengths
- Rose about 3% this week, with June industrial production beating expectations and lifting Q2 GDP forecasts.
- Weaknesses
- Foreign investors saw net outflows of about US$2.2bn this week, and retail money also sold.
- Comparison
- Strong year-to-date performance, but entered a pullback after June 22.
- Risks
- Cooling AI/momentum trades, foreign outflows, and valuation pressure.
- KoreaOW regional allocation and also the center of volatility
- Strengths
- Foreign investors recorded net inflows of about US$1.4bn this week, and the long-term allocation case remains favored.
- Weaknesses
- Down about 2% this week, with Q2 GDP showing broad-based slowing.
- Comparison
- After strong year-to-date performance, volatility has increased, and leveraged ETFs have had a notable impact on trading and volatility.
- Risks
- Leveraged ETF rebalancing, limited consumption support, and slowing growth outside exports.
- China AOW regional allocation, an asset tied to expectations for Chinese easing
- Strengths
- Rose about 3% this week, with the market expecting the July Politburo meeting to send a stronger easing signal.
- Weaknesses
- Consumer momentum is weakening, and land sale revenue continues to decline.
- Comparison
- Higher beta than Hong Kong, though performance over the prior three months remained under pressure.
- Risks
- Policy support falling short of expectations, weak domestic demand recovery, and external tariff shocks.
- Hong KongMW regional allocation, a beneficiary of the Greater China rebound
- Strengths
- Rose about 2% this week and was relatively resilient amid fund rotation.
- Weaknesses
- Still affected by China's macro backdrop and risk appetite.
- Comparison
- Has been more stable since June 22 than prior market winners.
- Risks
- Slower China growth, insufficient policy delivery, and shifts in foreign risk appetite.
- Brent crudedriver of macro risk and commodity performance
- Strengths
- Rose 16% this week, returning to US$100/bbl.
- Weaknesses
- Higher oil prices may weigh on some importing economies and consumption.
- Comparison
- Commodities led risk assets this week.
- Risks
- US-Iran tensions, renewed inflation, and policy reactions.
Key data
- MXAPJ weekly performance+0.5%As of Friday 4:00pm HKT.
- Current MXAPJ level844Current index level disclosed in the report scorecard.
- MXAPJ 12-month target1,080Target date is Jun-2027.
- Taiwan and China A weekly performance+3% eachOutperformed the regional market this week.
- Hong Kong weekly performance+2%Part of the Greater China rebound.
- Philippines, Indonesia, Korea weekly performance-2% eachRelatively lagged this week.
- EM Asia ex-China FII outflow-US$0.2bn w/wMainly driven by Taiwan -US$2.2bn, partly offset by Korea +US$1.4bn.
- Brent crude weekly gain+16% to US$100/bblDriven by US-Iran tensions.
- Momentum factor drawdownabout -20% from peakShows a clear cooling in momentum trading.
- Earnings Revision factor drawdownabout -8% from peakA smaller decline than the momentum factor, indicating earnings expectations are providing a cushion.
- Korea leveraged ETF AUMUS$53bn down to US$26bnLeverage exposure is about 2.1% of market free-float capitalization.
- Korea leveraged ETF rebalancing flowabout 10-15% of daily turnoverBelow the 20-30% range since June, but still meaningfully influential.
Impact & implications
For portfolios, the report suggests that in the near term investors should not rely solely on prior AI and momentum winners, but should pay attention to earnings revisions, flow stability, and policy catalysts. The MXAPJ target level implies substantial upside, but the path may be affected by oil prices, tariffs, geopolitics, and leveraged position rebalancing. Regionally, Goldman Sachs prefers Korea, Taiwan, China-A, and Japan; sector-wise it prefers Banks, Capital Goods, Health Care, and Tech Hardware & Semis.
Risks
- Continued US-Iran tensions are pushing up oil prices, which may create inflation and risk-appetite pressure.
- The Trump administration's new tariffs increase trade policy uncertainty.
- Although Korea leveraged ETF rebalancing flows have declined from peak levels, they may still amplify market volatility on large swing days.
- Cumulative foreign outflows from Taiwan and Korea are large, and further deterioration could pressure AI and tech supply chain assets.
- Slowing Chinese consumption momentum and declining land sale revenue may weaken fundamental support after easing expectations are priced in.
- The sharp drawdown in the momentum factor signals that crowded trades still face deleveraging risk.
What to watch
- Whether the July Politburo meeting delivers a stronger signal of Chinese policy easing.
- Whether the US-Iran situation and Brent crude can stabilize near US$100/bbl or continue rising.
- Korea leveraged ETF AUM, net subscriptions/redemptions, and daily rebalancing flows.
- Whether foreign flows to Taiwan, Korea, and South Asia continue to diverge.
- Whether MXAPJ EPS revisions can maintain an upward trend, especially in tech hardware, semiconductors, and capital goods.
- The follow-on impact of new US tariffs on Asia's export chain and earnings expectations.