Asia-Pacific ex-Japan equity strategy: MXAPJ rebounds as hardware and semiconductors lead, while Goldman Sachs retains a 1,120 index target

Overview

This weekly Asia-Pacific strategy update reviews market performance, positioning, earnings, valuations, flows and macro catalysts. Goldman Sachs sees continued support for MXAPJ from strong technology-related earnings and maintains a constructive regional allocation, while recognizing rate, oil-price and geopolitical pressures.

Core views

MXAPJ rose 1.1% despite further increases in oil prices and US bond yields. Korea rose 4%, while Taiwan and Thailand each gained 2%; Indonesia fell 4%, and Hong Kong and China A each declined 2%. Technology Hardware & Semiconductors, Internet/Media and Health Care led sector performance, whereas Software & Services, Telecom Services and Autos lagged. The divergence reinforced the report's preference for hard technology over Software & Services. The macro backdrop was mixed. Renewed Houthi strikes and stalled US-Iran talks lifted oil prices and contributed to a global bond selloff, with the US 30-year Treasury yield reaching its highest level since 2004. Markets priced about a 70% probability of an October Fed hike, broadly consistent with Goldman Sachs economists' view. US S&P PMIs reached their highest level since 2022. In Asia, China's PBOC left policy unchanged while signaling greater FX management to limit RMB appreciation; Korea's early-September exports accelerated on strong chip demand; Taiwan's August industrial production disappointed amid weaker tech-related output; and Indonesia's central bank held rates while pledging additional rupiah liquidity and hedging support. On trade policy, the Trump-Xi summit extended the tariff truce by two months to January 2027. Goldman Sachs notes that the meeting did not deliver major progress on geopolitics or AI governance, leaving these issues relevant to regional risk monitoring. Positioning data show selective rather than uniform risk appetite. Hedge-fund net allocation to Asia rose 69 basis points in September to 30.5%, a 13.2% overweight versus MSCI World. Korea saw selling and de-grossing as funds unwound long positions, partly offset by net buying in Hong Kong and Australia. Korea's net allocation fell to 4.8%, while Taiwan retained risk-on positioning: net allocation increased to 6.8% and gross allocation ended at 4.3%, both near the upper end of their historical ranges. China allocations remained range-bound, with gross allocation at 7.1%. Mutual-fund data also point to changing country and sector preferences. During August, EM and Asia ex-Japan funds increased exposure to India and Taiwan while trimming Hong Kong/China exposure versus benchmark. Regional funds added technology exposure and reduced China Industrials. At the sector level, funds remained most overweight China Industrials and most underweight Taiwan Technology Hardware & Semiconductors and China Banks. The report also notes that Korea leveraged ETF assets recovered to US$24 billion from a US$16 billion trough after a US$53 billion peak, equivalent to 1.7% of market free float; however, the recovery was driven mainly by market performance rather than new demand, as modest outflows continued from late July. Taiwan leveraged ETF assets remained near a record US$12 billion, or 0.7% of free float, while also experiencing profit-taking outflows. Goldman Sachs retains a constructive 12-month MXAPJ outlook. Its target is 1,120 against a current level of 891, implying 26% price appreciation and 29% total return. The report's market allocation is overweight Korea, China A, Taiwan and Japan; marketweight China, Hong Kong, India, Malaysia, Singapore and the Philippines; and underweight Australia, Indonesia and Thailand. Sector preferences are overweight Capital Goods, ex-Australia/China Banks, Health Care, and Tech Hardware & Semiconductors; Software & Services, Autos, Consumer Staples, Transportation and Utilities are underweight. Earnings and valuation monitoring support the strategy framework. The Asia-Pacific Earnings Revisions Leading Indicator signals sustained earnings upgrades, though at a moderating pace. Goldman Sachs forecasts MXAPJ EPS growth of 74% in 2026 and 25% in 2027, compared with consensus forecasts of 72% and 23%. The scorecard shows Tech Hardware & Semiconductors at 8.7x 2026 forward P/E and 7.4x 2027 forward P/E, alongside very strong forecast EPS growth, while Software & Services trades at 19.8x and 17.5x. At the aggregate index level, MXAPJ trades at 10.6x forward P/E and 9.2x two-year-forward P/E, with a valuation z-score below its 10-year average on those earnings multiples. Flows were supportive but uneven. EM Asia ex-China received US$1.4 billion of weekly foreign inflows, driven by Taiwan's US$1.7 billion and India's US$0.4 billion, partly offset by Korea's US$0.5 billion outflow and ASEAN's US$0.3 billion outflow. The report also records recent net foreign selling of US$127 billion in EM Asia ex-China after US$16 billion of buying since the March trough. Its Regional Asia Drawdown Risk model indicates materially reduced drawdown risk after the recent sharp market correction, but the report continues to track policy, geopolitical, liquidity and macro-event risks.

Analysis framework

Goldman Sachs combines weekly price and sector performance with hedge-fund and mutual-fund positioning, foreign and retail flows, earnings revisions, consensus forecasts, valuation multiples, macroeconomic indicators, risk barometers and policy-event calendars. It compares market and sector valuations with their 10-year histories and uses bottom-up consensus estimates alongside its own top-down forecasts and index targets.

Methodology notes

• Industry AnalysisVolume-price decomposition

  Market and sector performance, earnings growth and valuation comparison

  The report separates equity outcomes into returns, earnings revisions and valuation multiples to assess which markets and sectors are driving regional performance.

• Valuation methodsP/E and PEG Valuation

  Forward P/E, PEG, P/B, dividend yield and related consensus valuation measures

  Goldman Sachs compares forward earnings multiples and other consensus-based valuation measures across Asia-Pacific markets and sectors, including their 10-year z-scores.

• Quantitative, Factor, and Portfolio TheoryStyle factor analysis

  Style, factor and strategy-basket monitoring

  The report tracks the relative performance of growth, value, earnings-revision, duration, balance-sheet and thematic baskets to frame regional style leadership.

• Event-Driven and Behavioral FinanceFund-Flow and Positioning Analysis

  Hedge-fund, mutual-fund, foreign-investor, retail and leveraged-ETF flow analysis

  Positioning and flow data are used to identify changes in investor exposure, concentration and potential demand or profit-taking pressures.

Asset mapping & comparison

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

• MXAPJ

  Primary Asia-Pacific ex-Japan equity benchmark and strategy subject

  Strengths

  Goldman Sachs targets 1,120 versus 891 and expects sustained, though moderating, earnings upgrades.

  Weaknesses

  Exposure to higher oil prices, US yields and regional policy and geopolitical developments.

  Comparison

  The report compares MXAPJ valuations, earnings and performance with US, Europe, emerging markets and individual Asian markets.

  Risks

  Macro, policy, geopolitical, liquidity and earnings-revision risks.

• Korea

  Overweight market

  Strengths

  Strong chip demand supported early-September exports; Korea gained 4% during the week and carries a 12,000 KOSPI target versus 7,081.

  Weaknesses

  Hedge funds unwound long positions and Korea saw heavy net selling.

  Comparison

  Korea outperformed regional peers during the week and is preferred alongside Taiwan, China A and Japan.

  Risks

  Positioning de-grossing and foreign-flow volatility.

• Taiwan

  Overweight market

  Strengths

  Taiwan rose 2%, retained strong risk-on hedge-fund positioning, and received US$1.7 billion of weekly foreign inflows.

  Weaknesses

  August industrial production disappointed amid weaker tech-related output; leveraged ETFs have seen profit-taking outflows.

  Comparison

  Taiwan is a preferred market but remains among the largest mutual-fund underweights versus benchmark.

  Risks

  Technology-output softness and leveraged-product outflows.

• Tech Hardware & Semiconductors

  Overweight sector

  Strengths

  Led weekly performance and remains supported by strong chip demand, substantial forecast earnings growth and comparatively low forward P/E multiples.

  Weaknesses

  Fund positioning remains materially underweight Taiwan Tech Hardware & Semiconductors versus benchmark.

  Comparison

  The report favors hard technology over Software & Services, which underperformed and is underweight.

  Risks

  Technology-cycle volatility and sensitivity to trade and AI-governance developments.

Key data

• MXAPJ weekly return+1.1%Korea gained 4%; Taiwan and Thailand each gained 2%.
• MXAPJ 12-month target1,120Versus a current index level of 891; 26% price upside and 29% total return.
• Asia hedge-fund net allocation30.5%Up 69 basis points in September; 13.2% overweight versus MSCI World.
• EM Asia ex-China foreign flowsUS$1.4 billion inflowDriven by Taiwan at US$1.7 billion and India at US$0.4 billion.
• Korea leveraged ETF AUMUS$24 billionRecovered from a US$16 billion trough; equivalent to 1.7% of market free float.
• MXAPJ EPS growth forecast74% in 2026; 25% in 2027Goldman Sachs top-down forecasts in local FX.

Impact & implications

The report links regional resilience to hard-tech leadership, strong chip-related earnings and a constructive MXAPJ target, while positioning its preferred markets and sectors around this view. Higher oil prices, elevated US yields, unresolved geopolitical issues, uneven flows and scheduled macro and policy events remain important constraints on the outlook.

Risks

• Higher oil prices and rising US bond yields could pressure regional equity valuations and risk appetite.
• The Trump-Xi tariff truce extension did not resolve broader geopolitical or AI-governance issues.
• Trading strategy baskets may be constrained by market liquidity and stock-borrow availability.

What to watch

• Whether the tariff and rare-earth-control pause agreed at the Trump-Xi meeting remains in force through its stated November 11 expiration.
• Upcoming Asian activity, inflation, trade and PMI releases, including China PMIs, Korea exports and Taiwan industrial data.
• The October 27-28 FOMC meeting, the October 30 BOJ meeting and other regional policy decisions.
• Foreign flows, hedge-fund exposure, mutual-fund allocations and leveraged-ETF outflows in Korea and Taiwan.