Asia-Pacific equity markets under higher oil prices, inflation and interest rates Report Interpretation

Overview

This weekly Asia-Pacific strategy report links the latest MXAPJ decline to higher oil prices, inflation concerns and rising global yields. It combines macro transmission analysis, regional allocation views, valuation and earnings tracking, flows, and forthcoming policy catalysts.

Core views

MXAPJ fell 0.8% during the week. Korea gained 4%, while Thailand and the Philippines each rose 1%; Indonesia, China offshore and Hong Kong each fell 3%. Tech Hardware & Semiconductors, Capital Goods and Telecom Services led sector performance, whereas Software & Services, Consumer Retail and Property lagged. The immediate macro backdrop was a stronger-than-expected US core CPI reading, which lifted market-implied odds of a September Fed hike to 90%, while global bond yields reached multi-decade highs amid renewed inflation and fiscal concerns. The report identifies oil as the central transmission channel. Brent reached US$109/bbl on Thursday, a four-month high, as Middle East tensions re-escalated. Goldman Sachs oil analysts lifted their Brent forecasts by US$5/bbl to US$85/bbl for end-2026 and US$80/bbl for 2027, assuming shipping disruptions persist into next year. Its regional VAR impulse-shock analysis estimates that the average roughly US$30/bbl oil-price increase since the conflict began could impose a cumulative roughly 4% drag on MXAPJ earnings. Higher energy prices support inflation, which in turn raises bond yields as markets price further policy tightening and a more prolonged higher-for-longer rate environment. The rate effect is a second major concern. Historically, Fed hiking cycles have been negative for Asian equities, with Japan, Taiwan, Korea and Hong Kong suffering the greatest underperformance among North Asian markets. Goldman Sachs argues that earnings delivery can allow Asian equities to absorb moderately higher rates, but a yield increase exceeding 1.5 standard deviations above historical norms would more materially impair liquidity and market performance. Its macro model nevertheless finds relative differentiation: Korea, China and Japan tend to perform better when US rates and oil or commodity prices rise, while India, the Philippines and Indonesia tend to underperform. Energy, Mining and Banks typically lead at sector level, while Telecoms, Health Care and Software tend to lag. The report retains constructive medium-term index expectations despite these near-term pressures. MXAPJ stood at 884 against a 12-month target of 1,120, implying 27% price appreciation and 30% total return. Market allocations were overweight Korea, Taiwan and Japan; marketweight China, Hong Kong, India, Malaysia and Singapore; and underweight Australia, Indonesia, Thailand and the Philippines. Sector positioning was overweight Capital Goods, Banks excluding Australia and China, Health Care, Australia and China Banks, and Tech Hardware & Semiconductors; Energy and several other sectors were marketweight, while Software & Services, Transportation, Telecom Services, Internet, Metals & Mining, Property, Retail & Durables and Utilities were underweight. Earnings and valuation data provide a mixed foundation. Goldman Sachs says its earnings-revision indicator still signals sustained upgrades, but at a moderating pace. The MXAPJ scorecard shows 2026E and 2027E consensus EPS growth of 75% and 25%, respectively, while Goldman Sachs top-down forecasts are 72% and 23%. MXAPJ traded at 10.4x forward 12-month P/E and 9.0x forward 24-month P/E, with respective 10-year z-scores of -2.4 and -2.6, while its trailing P/B was 2.4x. Tech Hardware & Semiconductors, which comprise 41% of MXAPJ in the scorecard, were at 8.2x forward 12-month P/E and 7.0x forward 24-month P/E. Liquidity and event risks remain important. EM Asia ex-China saw US$3.3bn of weekly foreign-investor outflows, driven by Korea at -US$2.4bn and Taiwan at -US$0.9bn; foreign investors had recently net sold US$121bn after buying US$16bn since the March trough. The FTSE Russell index review, effective after the September 18 market close, is expected to generate more than US$19bn of gross two-way APAC flows and more than US$13bn across EM, with estimated net passive inflows of US$4.5bn and US$3.9bn, respectively. Korea leveraged ETF assets recovered from a US$16bn trough to US$25bn, though the report attributes the recovery primarily to returns rather than new demand; Taiwan leveraged ETF assets remained near US$13bn, with recent profit-taking outflows. The next key catalysts are the September 15-16 FOMC meeting, the September 17 Taiwan central-bank meeting, and the September 18 Bank of Japan meeting.

Analysis framework

Goldman Sachs first reviews weekly market performance and macro developments, then traces oil-price shocks through inflation, yields and regional earnings. It uses historical tightening-cycle comparisons, a regional VAR shock-sensitivity estimate, and a multi-factor macro model to compare country and sector exposure. The report supplements this with earnings revisions, consensus valuation measures, fund-flow data, risk indicators and policy-event calendars.

Methodology notes

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Oil-price transmission to inflation, bond yields and Asia-Pacific equity earnings

  The report links Middle East shipping disruption and higher oil prices to inflation, higher yields, tighter financial conditions and weaker index earnings.

• Quantitative, Factor, and Portfolio TheoryMulti-factor model

  Regional macro model using activity indicators, US real rates, DXY, commodities, geopolitical risk and policy uncertainty

  The model estimates which Asia markets and sectors tend to outperform or lag when US rates and commodity prices rise.

• Other

  Regional VAR impulse shock analysis

  The report uses a VAR sensitivity estimate to quantify the cumulative MXAPJ earnings effect of an approximately US$30/bbl oil-price shock.

• Valuation methodsP/E and PEG Valuation

  Forward P/E valuation compared with 10-year ranges and z-scores

  The report places market and sector valuations in historical context using consensus forward earnings multiples.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• MXAPJ

  Primary regional equity benchmark affected by higher oil prices, inflation and US rates

  Strengths

  Goldman Sachs maintains a 1,120 12-month target versus 884; earnings upgrades remain sustained.

  Weaknesses

  A conflict-related oil shock could create a roughly 4% cumulative earnings drag.

  Comparison

  Expected to be relatively more resilient in Korea and China exposures than India, the Philippines and Indonesia under higher-rate and oil conditions.

  Risks

  Sharp yield increases above 1.5 standard deviations from historical norms could hurt liquidity and performance.

• Korea

  Overweight market allocation and relatively resilient market in the macro model

  Strengths

  Korea gained 4% during the week; Goldman Sachs identifies it as relatively better positioned for higher US rates and oil prices.

  Weaknesses

  Weekly foreign outflows were US$2.4bn.

  Comparison

  Expected to fare better than India, the Philippines and Indonesia in the higher-rate and commodity-price scenario.

  Risks

  Leveraged ETF exposure was 1.7% of market free float, while recent ETF flows were moderately negative.

• Tech Hardware & Semiconductors

  Overweight MXAPJ sector

  Strengths

  Led weekly sector performance; scorecard weight was 41%, with 8.2x forward 12-month P/E and 7.0x forward 24-month P/E.

  Comparison

  The report identifies Software & Services as a typical laggard under higher US rates and commodity prices.

  Risks

  Broader rate and liquidity tightening remain relevant to regional equity performance.

Key data

• MXAPJ weekly performance-0.8%Korea rose 4%; Indonesia, China offshore and Hong Kong each fell 3%.
• Brent oil priceUS$109/bblFour-month high on Thursday amid renewed Middle East tensions.
• Brent forecast revisionUS$85/bbl by end-2026; US$80/bbl in 2027Both forecasts reflect a US$5/bbl increase and assumed persistent shipping disruption.
• Oil-shock earnings impact~4% cumulative MXAPJ earnings dragEstimated effect of the roughly US$30/bbl oil increase since the conflict began.
• EM Asia ex-China weekly flows-US$3.3bnDriven by Korea at -US$2.4bn and Taiwan at -US$0.9bn.
• MXAPJ target1,120 versus 88412-month target implies 27% price change and 30% total return.
• MXAPJ valuation10.4x forward 12-month P/E; 9.0x forward 24-month P/ECorresponding 10-year z-scores were -2.4 and -2.6.
• FTSE rebalancing flowsOver US$19bn APAC gross two-way flows; US$4.5bn net passive inflowsImplementation is scheduled after the September 18 market close.

Impact & implications

The report frames sustained oil disruption and a sharper yield rise as the principal threats to Asia-Pacific equity liquidity and earnings. Within that backdrop, its models favor relative resilience in Korea, China and Japan and in Energy, Mining and Banks, while identifying greater vulnerability in India, the Philippines, Indonesia, Telecoms, Health Care and Software.

Risks

• Persistent Middle East shipping disruption could keep oil prices elevated and weigh on MXAPJ earnings.
• Higher energy prices could reinforce inflation and prolong a higher-for-longer interest-rate environment.
• A sharp rise in yields above 1.5 standard deviations from historical norms could materially weaken Asian market liquidity and performance.
• Fed tightening has historically been especially negative for North Asian equities.
• Foreign outflows and leveraged ETF profit-taking could amplify market volatility.

What to watch

• The September 15-16 FOMC meeting and its Summary of Economic Projections.
• The September 17 Taiwan central-bank meeting and September 18 Bank of Japan meeting.
• Oil prices and evidence on the persistence of Middle East shipping disruptions.
• Asian foreign-investor flows, particularly in Korea and Taiwan.
• FTSE Russell index-review implementation after the September 18 market close.
• US inflation, bond-yield movements and the pace of earnings revisions.