Goldman says MXAPJ faces near-term pressure, but MSCI rebalancing, AI investment spillovers, and first-quarter results still provide structural cues
AI summary card
Goldman says MXAPJ faces near-term pressure, but MSCI rebalancing, AI investment spillovers, and first-quarter results still provide structural cues
The report focuses on Asia Pacific ex-Japan markets and argues that hawkish Fed repricing triggered by high inflation, rebounding oil prices, foreign outflows, and weaker Asian currencies are pressuring risk appetite, but MSCI rebalancing could generate more than US$76bn of two-way flows, while AI server investment and technology exports continue to support Asia's tech chain.
- MSCI core index rebalancing is expected to trigger more than US$76bn/US$44bn of total two-way flows across Asia Pacific and global emerging markets; within Asia Pacific, Australia, Taiwan, and Korea are expected to see the largest net inflows, while Japan, Indonesia, and India are expected to see relatively large net outflows.
- AI and global data center investment are spilling over into Asia; Goldman’s technology team expects server revenue to reach about US$650bn in 2026, and strong technology exports should help offset the pressure that higher energy prices place on current accounts.
- As of the report sample, 76% of MXAPJ market cap had reported CY1Q26 earnings, with 49% above expectations and 27% below; the median earnings beat was +5%.
- EM Asia ex-China saw about US$17bn of foreign selling in a single week, with Korea accounting for about -US$13.2bn and Taiwan about -US$2.5bn, making them major sources of market pressure.
- Stocks that beat earnings expectations still perform reasonably well after results, but the excess return from the current quarter to two weeks later is clearly weaker than the five-year average, suggesting the market is more cautious about the persistence of positive catalysts.
Report interpretation
Overview
This is Goldman Sachs' Asia-Pacific weekly strategy preview, covering MXAPJ and Asia Pacific regional markets, sectors, themes, flows, valuations, earnings revisions, risk indicators, and macro events. The central message is that short-term markets are being hit by US inflation and hawkish Fed expectations, rebounding oil prices, foreign selling, and weaker Asian currencies; however, MSCI index rebalancing, AI spillovers, technology exports, and first-quarter earnings releases provide trading cues for differentiation within the region across markets and sectors.
Core views
The key views are threefold. First, MSCI index rebalancing will generate significant passive flows, with Australia, Taiwan, and Korea likely benefiting from net inflows, while Japan, Indonesia, and India face net outflow pressure; sector-wise, technology hardware and semiconductors, and metals and mining are more likely to attract passive inflows, while capital goods and consumer retail and services may face outflows. Second, the AI investment boom continues to spill into Asia, particularly supporting Taiwan and other technology-oriented economies through servers, data centers, and the technology export chain. Third, first-quarter earnings in Asia Pacific ex-Japan have generally come in better than historical seasonality, but the market's reward for earnings beats has weakened, indicating continued caution toward macro and liquidity headwinds.
Analysis framework
The report uses a regional strategy weekly-report framework that combines index rebalancing estimates, passive flow analysis, earnings-season tracking, sector and market allocation, valuation percentiles, style backtests, foreign flow trends, a risk barometer, and a macro event calendar to identify short-term risks and relative opportunities in Asia Pacific markets.
Methodology notes
Uses MSCI constituents, weights, and passive tracking assets to estimate the total two-way flow and net passive flow after rebalancing.
This framework is used to gauge passive buying or selling pressure in different markets and sectors before and after index effective dates, with a focus on flow size, direction, and impact relative to trading volume.
Tracks the share of market cap that has reported, the proportions of earnings beats and misses, and the degree to which reported earnings have met full-year expectations.
This framework is used to assess whether fundamentals support the market rally and to observe relative stock performance after earnings beats or misses.
Starts from the expansion in global data center and server demand and evaluates the impact of AI investment on Asia's technology exports, current accounts, and regional markets.
The report combines expectations for AI server revenue, the strength of technology exports, and energy price pressure to assess the structural support for Asia's tech chain.
Integrates risk, volatility, correlation, policy risk, foreign flows, and macro activity indicators to monitor regional risk appetite.
This framework is used to identify sources of market pressure, including foreign selling, currency weakness, policy uncertainty, and changes in macro momentum.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- MXAPJCore coverage index and regional market benchmark
- Strengths
- First-quarter earnings releases have generally been better than expected, AI and technology exports provide structural support, and some markets are supported by net inflows from MSCI rebalancing.
- Weaknesses
- It has recently fallen about 2%, weighed down by high US inflation, hawkish Fed repricing, rebounding oil prices, foreign outflows, and weaker Asian currencies.
- Comparison
- Compared with a single market, MXAPJ reflects overall Asia Pacific ex-Japan risk appetite; within the region, Australia, Taiwan, and Korea are expected to see net rebalancing inflows, while Japan, Indonesia, and India are expected to see net outflows.
- Risks
- Rising US dollar rates, weaker Asian currencies, continued foreign outflows, higher oil prices, and policy uncertainty.
- Taiwan technology chainA potential beneficiary of AI spillovers and MSCI rebalancing
- Strengths
- Taiwan was already a technology-oriented economy before the AI boom, technology exports are strong, and MSCI rebalancing is expected to bring about US$2.4bn of net inflows.
- Weaknesses
- Foreign investors sold about US$2.5bn in a single week, so liquidity pressure remains.
- Comparison
- Compared with other Asian economies, Taiwan is more sensitive to the AI server, data center, and semiconductor cycle.
- Risks
- A slowdown in AI capex, semiconductor cycle volatility, continued foreign selling, and FX pressure.
- Korea marketA net inflow market in MSCI rebalancing, but also one of the markets facing the heaviest foreign outflow pressure
- Strengths
- MSCI rebalancing is expected to bring about US$2.0bn of net inflows, supported by some passive flows.
- Weaknesses
- Foreign selling in EM Asia ex-China is driven mainly by Korea, with weekly outflows of about US$13.2bn; the report title also says Korea led declines.
- Comparison
- Compared with Taiwan, Korea is also exposed to the technology cycle, but its funding pressure is currently more pronounced.
- Risks
- Continued foreign deleveraging, weaker Asian currencies, and a decline in global risk appetite.
- Technology hardware and semiconductorsA sector-level beneficiary of passive flows and the AI theme
- Strengths
- MSCI rebalancing is expected to bring substantial passive inflows, and expanding AI server and data center investment supports demand.
- Weaknesses
- Valuations and expectations may already reflect part of the AI optimism, and the durability of the stock-price reward after earnings beats is weakening.
- Comparison
- Compared with capital goods and consumer retail and services, technology hardware and semiconductors are more favorably positioned in rebalancing flows.
- Risks
- AI demand falling short of expectations, valuation compression, and disruptions to exports and supply chains.
- Japan, Indonesia, and IndiaMarkets expected to see net outflows from MSCI rebalancing
- Strengths
- Each market still has local fundamentals and structural opportunities, but this report is not focused on single-stock or single-country deep dives.
- Weaknesses
- MSCI rebalancing is expected to result in net outflows of about US$1.9bn, US$1.5bn, and US$870mn, respectively.
- Comparison
- Compared with Australia, Taiwan, and Korea, these markets face a less favorable passive flow direction in this index rebalancing.
- Risks
- Rebalancing selling pressure, weaker foreign risk appetite, local currency weakness, and macro event shocks.
Key data
- MXAPJ weekly performanceabout -2%The report title says MXAPJ fell about 2%, mainly due to US inflation, hawkish Fed repricing, rebounding oil prices, foreign outflows, and weaker Asian currencies.
- MSCI Asia Pacific/GEM core index total two-way rebalancing flowmore than US$76bn / US$44bnThe MSCI index rebalancing, effective after the May 29 close, is expected to trigger large passive rebalancing flows.
- MSCI Asia Pacific/GEM core index net passive flowabout -US$400mn / -US$500mnTotal two-way flow is large, but the net amount is slightly negative.
- Markets expected to see net inflowsAustralia +US$2.6bn, Taiwan +US$2.4bn, Korea +US$2.0bnThese are the Asia Pacific markets expected to receive the largest net passive inflows.
- Markets expected to see net outflowsJapan -US$1.9bn, Indonesia -US$1.5bn, India -US$870mnThese are the Asia Pacific markets expected to see the largest net passive outflows.
- 2026 server revenue forecastabout US$650bnGoldman’s technology team expects server revenue to be driven mainly by AI.
- CY1Q26 earnings coverage821 companies, covering 76% of MXAPJ market capThe sample shows that first-quarter earnings releases already cover most of market cap.
- CY1Q26 earnings performance49% beat, 27% miss, median beat +5%Overall earnings releases were positive.
- CY1Q26 earnings growth+49% YoY / +56% QoQThe report says reported CY1Q26 earnings growth was strong both year on year and quarter on quarter.
- EM Asia ex-China foreign outflowsUS$17bn weekly sellingDriven mainly by Korea at -US$13.2bn and Taiwan at -US$2.5bn.
Impact & implications
For investors, the report conveys a theme of 'structural differentiation under macro and liquidity pressure.' Short-term risk appetite is constrained by US rate expectations, oil prices, currency weakness, and foreign outflows, with especially pronounced volatility likely in foreign-sensitive markets such as Korea and Taiwan. However, passive flows from index rebalancing, the resilience of technology exports supported by AI investment, and better-than-expected first-quarter earnings create relative opportunities in Taiwan, technology hardware and semiconductors, selected metals and mining names, and markets benefiting from passive inflows.
Risks
- US inflation coming in above expectations and causing further hawkish Fed repricing.
- A rebound in oil prices increasing current-account and inflation pressure on Asian energy-importing economies.
- Continued foreign outflows from EM Asia ex-China, especially pressure on Korea and Taiwan liquidity.
- Broad Asian currency weakness potentially weighing on USD returns and foreign allocation appetite.
- Stock-price reactions after earnings beats weakening versus history, implying that positive earnings surprises may be offset by macro headwinds.
- Passive flows from MSCI rebalancing may cause short-term trading and price volatility.
- Policy risk, geopolitical tensions, and changes in US-China relations may affect regional risk appetite.
What to watch
- The MSCI index rebalancing effective after the May 29 close and the actual realization of passive flows.
- Whether net inflows into Australia, Taiwan, and Korea can offset regional foreign selling pressure.
- Short-term price and trading reactions in Japan, Indonesia, and India under rebalancing outflows.
- The persistence of AI server and data center investment and Asia's technology exports.
- The remaining CY1Q26 earnings releases, and whether the two-week relative performance of earnings-beat stocks continues to weaken.
- Whether foreign flows into Korea and Taiwan stabilize after recent selling.
- Changes in US rates, oil prices, Asian currencies, and the GS risk barometer.
- Upcoming policy meetings, political events, and macro data in Asia and globally.