Goldman Sachs Asia 2H Strategy: Continue Holding Winners, Favor North Asia, AI Hardware, Capital Goods, and Banks

Overview

This is a Goldman Sachs cross-asset, cross-regional compilation of Asian strategy and thematic research. Its main topics include second-half allocation in Asian equities, Korean banks, NetEase, Mitsubishi Heavy Industries, Krafton, CPU server demand, Budweiser APAC, India IT services, Indian internet companies, and Chinese healthcare companies, supplemented by views on the US earnings season, global FX, and rates. The report’s core view is that the strength of North Asian markets led by technology in the first half still has a basis for continuation because earnings are the market’s most important driver. Against a backdrop of easing oil-price risks and lower macro volatility, market attention will shift toward AI investment returns, valuations, and the realization of company-level earnings.

Core views

Key views include: First, continue pursuing a “winners” strategy by favoring markets and themes with the strongest earnings growth, especially North Asia, the AI infrastructure hardware supply chain, power demand, defense, and other highly capital-intensive areas. Second, at the strategy-basket level, favor value cyclicals, growth at a reasonable price, and selected financials, with capital-intensive companies expected to outperform capital-light companies amid fundamental and strategic-investment tailwinds. Third, Korean banks benefit from higher terminal policy rates and greater net interest margin expansion, placing them in a relative safe zone amid volatility. Fourth, NetEase is viewed as an attractive “non-AI” compound-growth asset, supported by 2026E operating-profit growth and free-cash-flow yield. Fifth, demand for India IT services is deteriorating, valuation premiums are widening, and AI may cause a shift in services spending or price deflation, leaving limited near-term re-rating catalysts.

Analysis framework

The report combines top-down and bottom-up analysis: it first assesses the Asian and global market environment through macro, earnings, and valuation frameworks, then applies strategy baskets, sector earnings revisions, target-price adjustments, expert calls, and company-management discussions to regional, sector, and stock views. For equities, it focuses on earnings growth, the capital-expenditure cycle, valuation multiples, policy, and investments related to geopolitical security; for FX and rates, it considers central-bank policy, inflation risks, yield curves, and currency selection for carry strategies.

Methodology notes

• strategy_allocationAsia 2H Strategy Allocation Framework

  Earnings-driven and thematic selection

  Uses earnings growth as the core variable for market direction and selects regions and sectors with the strongest growth and the clearest capital-expenditure and structural-demand trends.

• portfolio_basketAsia Strategy Baskets

  Strategy-basket rebalancing

  Uses 59 strategy baskets to express preferences for value cyclicals, growth at a reasonable price, selected financials, capital-intensive companies, and structural themes.

• factor_modelGS Factor Profile

  Growth, financial returns, valuation multiples, and composite factors

  Goldman Sachs’ factor profile uses standardized rankings and percentile comparisons to assess stocks’ growth, financial returns, valuation, and overall attractiveness relative to the market and industry peers.

• event_frameworkM&A Rank

  M&A probability scoring

  Goldman Sachs assesses the probability of covered companies becoming acquisition targets on a scale of 1 to 3 and may incorporate M&A factors into target prices in high- or medium-probability cases.

• macro_marketFrom Macro to Micro Volatility

  Shift from macro volatility to micro volatility

  Easing oil-price shocks reduce macro tail risks, but AI investment returns and high valuations make stock- and theme-level volatility more important.

Asset mapping & comparison

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

• MXAPJ / Asia ex-Japan equities

  Core allocation

  Strengths

  Strong earnings growth, a 12-month target of 1,080, and expected mid-teens returns in the second half.

  Weaknesses

  Valuation and macro interest-rate risks may still suppress risk appetite.

  Comparison

  Compared with domestic-demand cyclicals and consumer stocks, the report favors North Asian and capital-intensive assets with clearer earnings and structural themes.

  Risks

  A hawkish Federal Reserve, high AI valuations, earnings disappointments, and geopolitical risks.

• North Asian markets: Korea, Taiwan, Japan, China A-shares

  Regional overweight direction

  Strengths

  Supported by earnings in technology hardware, AI infrastructure, capital goods, and financials.

  Weaknesses

  Sensitive to the global technology cycle and risk appetite.

  Comparison

  Preferred over domestic-demand cyclicals and consumer themes lacking clear earnings upgrades.

  Risks

  Disappointing validation of AI investment returns, a slowing export cycle, and policy disruptions.

• Korean banks

  Sector preference

  Strengths

  Higher terminal policy rates, net interest margin expansion, and safe-haven fund preferences support earnings upgrades.

  Weaknesses

  Domestic transmission remains uneven, while consumption improvement depends on exports, wages, and the stock-market wealth effect.

  Comparison

  In a volatile market, they are relatively closer to the “sweet spot” than other cyclical sectors.

  Risks

  A policy-rate path below expectations, deteriorating asset quality, and weaker macro growth.

• NetEase

  Stock-level Buy view

  Strengths

  Improved operating efficiency, 20% 2026E operating-profit growth, a 9% free-cash-flow yield, and catalysts from new games and Southbound Connect.

  Weaknesses

  Still dependent on game performance and continued delivery of operating-efficiency gains.

  Comparison

  Positioned as a “non-AI” compound-growth asset outside the core AI theme.

  Risks

  New-game sales below expectations, regulatory changes, and insufficient valuation re-rating.

• Mitsubishi Heavy Industries

  Stock-level Buy view

  Strengths

  GTCC expansion aligns with policy direction, and energy-systems profits are expected to exceed consensus.

  Weaknesses

  Large capital expenditure requires execution on capacity utilization and high-margin aftermarket growth.

  Comparison

  Represents a beneficiary of high capital intensity and energy-security themes.

  Risks

  Project execution, cost inflation, and energy-equipment demand below expectations.

• Krafton

  Buy maintained but target price lowered

  Strengths

  Strong PUBG traffic resilience, better-than-expected early sales of Subnautica 2, and a current valuation at a substantial discount.

  Weaknesses

  High concentration in the single PUBG IP, with the product pipeline not yet converted into stable earnings diversification.

  Comparison

  Compared with more diversified game companies, its valuation needs to reflect a single-IP discount.

  Risks

  Decline of the core IP, insufficient delivery from new products, and further compression of valuation multiples.

• CPU server hardware chain

  AI infrastructure beneficiary theme

  Strengths

  Agentic AI and replacement of aging servers could generate a 5-6x increase in demand, while supply constraints improve revenue visibility.

  Weaknesses

  Current supply limitations mean some enterprise demand is not being met.

  Comparison

  Unlike the GPU-dominated narrative, the report emphasizes that CPUs are better suited to sequential tasks and heterogeneous workloads for AI Agents.

  Risks

  Unclear enterprise AI investment returns, supply-chain bottlenecks, and demand pulled forward.

• India IT services

  Sector view neutral to negative

  Strengths

  Currency tailwinds may provide partial support to margins.

  Weaknesses

  Deteriorating demand, lower FY27E growth, competitive pressure, and AI reinvestment constraints on margins.

  Comparison

  Compared with global enterprise growth, Indian IT revenue continues to diverge, while widening valuation premiums limit re-rating potential.

  Risks

  AI-driven shifts in services spending or price deflation, and downside risks to the upper end of Infosys and HCL Tech guidance.

• Global FX and rates

  Supplementary cross-asset view

  Strengths

  Lower oil-price risks restore some safe-haven appeal to nominal duration, while near-term risks for the US dollar are tilted upward.

  Weaknesses

  Japanese duration is constrained by domestic risks, while a sterling rebound may be merely tactical.

  Comparison

  In FX, low-yield funding currencies are preferred for carry portfolios; in rates, the preference is for US curve longs slightly further from the very front end.

  Risks

  Central-bank policy repricing, intervention risks, and the return of fiscal and political premia.

Key data

• MXAPJ 12-month target1,080Goldman Sachs maintains its 12-month target and expects mid-teens returns in the second half.
• MXAPJ earnings growth forecast2026E: 60%; 2027E: 22%Earnings growth is viewed as the key driver of further upside in Asian markets.
• Korean bank earnings revisions2026E-2028E raised by 3%-7%Driven by expectations for higher terminal policy rates and net interest margin expansion.
• Korean bank target-price revisions12-month target prices raised by an average of 7%Following the revisions, Goldman Sachs’ 2026-2028 earnings forecasts are 6%/13%/14% above BBG consensus, respectively.
• NetEase target priceUS$169 / HK$264Goldman Sachs reiterates Buy, supported by upward revisions to 2027E-2028E earnings and improved operating efficiency.
• NetEase 2026E operating-profit growth and FCF yield20% YoY operating profit growth; 9% FCF yieldThe report describes it as an attractive “non-AI” compound-growth asset.
• Mitsubishi Heavy Industries target price¥6,000Buy maintained; Goldman Sachs believes more than ¥100bn of GTCC capacity investment will not worsen the fixed-cost structure.
• Krafton target priceW300,000 from W500,000Buy maintained but target price lowered to reflect concentration risk in the single PUBG IP.
• Potential increase in CPU server demand5-6x upliftExperts believe Agentic AI and replacement of aging servers will significantly expand the CPU server market.
• Budweiser APAC target priceHK$7.6 from HK$8.8Buy maintained, but 2026E-2028E net-profit forecasts reduced by 11%-13% due to pressure in China.
• India IT services FY27E organic revenue growth forecast2.4% from 3.2%Deteriorating demand conditions led to sector target-price cuts of 1%-12%; the view is neutral to negative.
• One 97 Communications target priceRs1,430Buy maintained; FY26E-FY30E revenue and EBITDA forecasts raised.
• Eternal target priceRs350 from Rs340Buy maintained, supported by growth and margin improvement in Zomato food delivery and Blinkit quick commerce.
• MakeMyTrip target priceUS$84 from US$80Buy reiterated; 2HFY27 revenue growth is expected to accelerate to above 20%.
• S&P 500 Q2 2026 EPS growth consensus22% YoYAI infrastructure stocks are expected to contribute nearly 60% of the growth.

Impact & implications

The portfolio implication is that Asian equity allocation should remain centered on earnings strength and structural capital-expenditure themes rather than simply betting on rotation into stagflationary sectors. North Asian technology hardware, banks, capital goods, power, defense, and AI infrastructure remain Goldman Sachs’ preferred themes. At the same time, as oil-price shocks ease and macro volatility declines, investors should place greater emphasis on validating AI investment returns, digesting valuations, realizing company-level earnings, and monitoring industry supply-demand constraints. For sectors such as India IT services, where demand is under pressure and valuation premiums are high, near-term risk-reward is less attractive than in assets with clearer earnings upgrades or structural growth.

Risks

• A hawkish Federal Reserve path and rate-hike risks could suppress valuations.
• Changes in expected returns amid high valuations of AI-related assets could trigger micro volatility.
• If Asian earnings growth falls below expectations, MXAPJ’s upside will be limited.
• Although oil and geopolitical risks have eased, they could re-emerge and push up inflation and macro uncertainty.
• Korean banks face uneven domestic transmission and asset-quality risks.
• India IT services may remain under pressure from deteriorating demand, AI substitution, or price deflation.
• Consumer-related names such as Budweiser APAC remain affected by weak offline consumption in China and weather disruptions.
• Companies dependent on a single IP or product face insufficient earnings-diversification risks.

What to watch

• Whether MXAPJ earnings revisions continue to support the 12-month target of 1,080.
• Whether the relative performance of Korea, Taiwan, Japan, and China A-shares continues to reflect North Asian leadership.
• Revenue, margin, and investment-return disclosures from AI infrastructure companies, especially hyperscaler results.
• CPU server supply constraints, enterprise demand fulfillment rates at Dell and HPE, and changes in order backlogs.
• Korea’s policy-rate path, net interest margins, and bank asset quality.
• Sales contribution from NetEase’s new game Sea of Remnants and progress toward Southbound Connect inclusion around September.
• FY27 revenue guidance for India IT services and organic-growth risks at Infosys and HCL Tech.
• Recovery in Chinese demand for Budweiser APAC, strength in India, and low-base recovery in Korea.
• Performance of the US dollar, yen, sterling, and emerging-market carry funding currencies.
• The contribution of AI infrastructure to S&P 500 EPS growth during the US Q2 2026 earnings season.