Hong Kong and China offshore markets drove a 1% weekly gain in MXAPJ, while earnings resilience and 21% 12-month target upside support a positive outlook

Overview

This Asia-Pacific weekly strategy report integrates market performance, macroeconomic data, institutional positioning, MSCI index changes, leveraged ETFs, corporate earnings, and cross-asset forecasts. Its core view is that, despite renewed foreign outflows, rising global long-end yields, and weaker-than-expected economic data in parts of Asia, rebounds in Hong Kong and China offshore markets, resilient technology exports, and strong CY2Q26 earnings continue to support MXAPJ.

Core views

MXAPJ rose 1.0% this week, with pronounced divergence across regional markets: Hong Kong gained 4%, China offshore markets gained 3%, and Indonesia rose 2%, while Taiwan fell 2% and the Philippines and Singapore each declined 1%. Healthcare, materials, and energy led, while capital goods, automobiles, software, and consumer staples lagged. Asian currencies strengthened, and Korean exports rebounded in early August on stronger chip demand, indicating that technology exports remained resilient despite higher oil prices. The macro backdrop was more mixed: China's July activity data broadly missed expectations, while Japan's second-quarter GDP disappointed due to weak consumption and capital expenditure. Bank Indonesia kept rates unchanged and extended preferential FX hedging terms, while the Reserve Bank of India's meeting minutes indicated a more hawkish policy stance. Global long-duration bonds sold off amid concerns about fiscal policy, inflation, geopolitics, and crowding out from artificial intelligence financing. The US 30-year Treasury yield rose to its highest level since 2007, and US Treasury buybacks failed to meaningfully halt the decline. Fund flows did not strengthen in tandem. Asia-Pacific emerging markets excluding China recorded US$1.5 billion in weekly foreign outflows, driven primarily by US$1.6 billion of outflows from Korea. Goldman Sachs Prime Services data showed modest net selling by global Prime accounts month to date. Asia remained the principal selling region following record net selling in July, although the pace slowed somewhat. Japan, Korea, and Taiwan saw the largest net selling, while China recorded net buying. Gross leverage among Asia fundamental long/short funds fell sharply by 14.5 percentage points month to date to 181.0%, its lowest level in more than a year and the 43rd percentile of its five-year history. Net leverage remained at 59.3%, corresponding to the 59th percentile over one year and the 82nd percentile over five years. Regional net exposure was 28.5%, an 11.7% overweight relative to MSCI World. Buying of Chinese equities has recently increased, but net exposure remains near a five-year low. In Korea, long sales were 1.5 times short sales, while net exposure declined to 4.2% and gross exposure fell to 3.2%. Long-only funds and hedge funds were not fully aligned in their positioning. Based on preliminary EPFR data covering approximately 60% of assets under management, Asian funds were most overweight China, Singapore, and Hong Kong, and most underweight Taiwan and India. Emerging-market funds were most overweight Brazil and Mexico and most underweight Taiwan. In July, both Asian and emerging-market funds increased allocations to Korea while reducing allocations to Taiwan and China. At the sector level, Korean technology hardware and semiconductors received the largest increase in allocation, while Taiwanese technology hardware and semiconductors, Korean industrials, and Chinese banks experienced the largest reductions. Chinese industrials remained the most overweight sector among funds, while Taiwanese technology hardware and semiconductors and Chinese banks were among the most notably underweight areas. This positioning analysis is based on 350 active Asia Pacific ex Japan and emerging-market funds and will be revised as more funds report. MSCI's index changes, effective after the August 31 close, are a near-term flow catalyst emphasized in the report. Goldman Sachs estimates that non-core changes involving factor, ESG, and customized indexes will generate approximately US$8 billion in two-way passive trading across Asia-Pacific. Together with roughly US$34 billion from core indexes, total trading will exceed US$42 billion. Based on the full estimates, Asia-Pacific and global emerging markets could see more than US$42 billion and US$29 billion, respectively, in two-way trading, as well as US$2.2 billion and US$0.8 billion in net passive inflows. Within Asia-Pacific, Japan is expected to receive US$2.2 billion in net inflows, India US$1.5 billion, and Taiwan US$1.1 billion. Korea is expected to record US$1.1 billion in net outflows, Australia US$1.0 billion, and ASEAN US$0.7 billion. These results imply that the index-rebalancing date could significantly affect near-term trading volumes and flow direction in certain markets and stocks. Leveraged ETFs indicate that Korean and Taiwanese markets retain high leveraged exposure, but incremental demand is weak. Assets in Korean leveraged ETFs recovered to US$25 billion after contracting from a peak of US$53 billion to a low of US$16 billion. The summary page lists their share of free-float market capitalization as 1.9%, while the main chart text lists 1.8%. The recovery was driven mainly by asset-price appreciation rather than new fund demand, as the relevant ETFs have continued to experience moderate outflows since late July. Taiwanese leveraged ETF assets remained near a record high at approximately US$13 billion, equal to 0.7% of free-float market capitalization, but profit-taking outflows have totaled roughly US$1 billion since August. High asset levels therefore do not necessarily indicate continued momentum buying. Corporate earnings are an important fundamental basis for the report's positive view. A total of 622 companies have reported, covering 84% of MXAPJ market capitalization. CY2Q26 earnings rose 135% year over year and 52% quarter over quarter. Actual CY6M26 earnings have reached 51% of the full-year forecast, ahead of the historical seasonal pace. In the second quarter, 46% of companies exceeded consensus earnings expectations and 26% missed, with a median earnings surprise of 4.3%. Singapore and Taiwan had the highest shares of companies beating expectations, while Australia and India had the lowest. The beat rate was relatively high in energy, materials, and information technology, and lower in real estate, communication services, and healthcare. Stocks beating earnings expectations outperformed by more than historical patterns would suggest, while the underperformance of stocks missing expectations was also more pronounced. Beat stocks performed particularly strongly in Australia, China A-shares, and Taiwan, while miss stocks posted more significant declines in Australia, Korea, mainland China, and Hong Kong. In strategic allocation, Goldman Sachs identifies capital goods excluding Australia/China, healthcare, and technology hardware and semiconductors as overweight sectors. Australia/China banks, chemicals and other materials, energy, automobiles, and consumer staples are neutral, while software and services, transportation, and utilities are underweight. Its MXAPJ index path is 891 currently, 980 in 4Q26/3 months, 1,030 in 1Q27/6 months, and 1,080 in 3Q27/12 months, corresponding to the report's stated upside of 10% over 3 months and 21% over 12 months. Meanwhile, the Asia Earnings Revision Leading Indicator, ERLI, continues to signal upward earnings revisions, although their pace is slowing. The regional drawdown risk model, RADaR, indicates that the risk of a major drawdown has declined significantly following the recent sharp market correction. Earnings forecasts reflect both strong growth and a degree of caution. For MXAPJ, Goldman Sachs' top-down forecasts call for EPS growth of 60% in 2026 and 22% in 2027, below consensus expectations of 72% and 24%, respectively. For Korea, consensus forecasts are 338% and 35%, versus Goldman Sachs forecasts of 320% and 35%. For Taiwan, consensus forecasts are 57% and 29%, versus Goldman Sachs forecasts of 48% and 30%. For China, consensus forecasts are 18% and 17%, while Goldman Sachs expects only 8% and 12%. The bullish index view therefore does not depend on fully accepting the market's most optimistic near-term earnings-growth assumptions, but instead combines actual earnings delivery, subsequent growth, and a valuation framework. Cross-asset forecasts provide the macroeconomic path affecting Asia-Pacific equities. Goldman Sachs expects the US 10-year yield to decline from 4.71% to 4.25% in 12 months, the German/euro-area 10-year yield from 3.26% to 3.00%, and the Japanese 10-year yield from 2.87% to 2.30%. Among commodities, gold is expected to rise from US$4,633 per ounce to US$5,115, while WTI crude is forecast to fall from US$82.1 per barrel to US$69 and Brent crude from US$93.3 to US$74. Policy-rate paths diverge: Indonesia is expected to rise from 5.75% to 6.25%, India from 5.25% to 5.75%, Korea from 2.75% to 3.25%, and Japan from 1.0% to 1.5%. China is expected to decline slightly from 1.4% to 1.3%, the United States from 3.75% to 3.5%, and Australia from 4.35% to 3.6%. These forecasts form the macro backdrop for the report's assessment of regional currencies, valuations, and capital allocation conditions.

Analysis framework

The report first reviews weekly performance across markets, sectors, currencies, and interest rates, then uses Goldman Sachs Prime Services and EPFR data to assess changes in hedge-fund and mutual-fund positioning. It subsequently estimates passive flows arising from MSCI changes, analyzes the size and funding sources of Korean and Taiwanese leveraged ETFs, and tests fundamentals using reported corporate results, earnings surprises, and share-price reactions. Finally, it combines earnings-revision indicators, valuations, risk models, sector allocations, and forecasts for equities, interest rates, currencies, and commodities to formulate its MXAPJ index targets and regional strategy views.

Methodology notes

• Event Strategy and Behavioral FinanceFund Flow/Positioning Analysis

  Prime Services and EPFR positioning and fund-flow analysis

  The report uses Prime-account net buying and selling, gross leverage, net leverage, and regional exposure, together with the relative benchmark overweights and underweights of approximately 350 active funds, to identify the actual positioning direction of different institutional investor types in Asia, China, Korea, and Taiwan.

• Event Strategy and Behavioral FinanceEvent-driven analysis

  Estimation of passive flows from MSCI index rebalancing

  Based on post-rebalancing index weights, free-float ratios, fund asset sizes, and passive tracking relationships, the report estimates the potential purchases, sales, and net inflows or outflows for each market and stock when the changes take effect on August 31. Free-float ratios use the average of estimates from Bloomberg, FactSet, and Refinitiv, and stock-level estimates are priced as of August 19, 2026.

• Event Strategy and Behavioral FinanceExpectations Gap/Expectations Management

  Earnings surprises and post-announcement relative-return analysis

  The report compares companies' actual earnings with consensus expectations and examines the performance of beat and miss stocks relative to local indexes to assess the pricing impact of earnings-expectation gaps during the current reporting season.

• Quantitative/Factor/Portfolio TheoryStyle factor analysis

  MXAPJ style-factor portfolio backtesting

  The report ranks MXAPJ constituents by each factor metric, selects stocks in the highest and lowest quartiles to form equal-weighted portfolios, and rebalances quarterly, comparing long-short relative performance to evaluate the historical effectiveness of different styles.

• Valuation methodsPE/PEG valuation

  Forward P/E and ten-year range comparison

  The report compares the forward P/E multiples of MXAPJ and its markets and sectors with their own ten-year ranges and with US and European markets to assess current pricing from historical and cross-market perspectives.

• Valuation methodsPB valuation

  Price-to-book ratio, ROE, and ten-year z-score comparison

  The report jointly examines historical price-to-book ratios, forward ROE, and ten-year valuation z-scores to assess whether book-value pricing across markets and sectors is consistent with profitability.

• Event Strategy and Behavioral Finance

  Regional drawdown risk model (RADaR)

  Goldman Sachs uses its regional drawdown risk model to track the risk of a significant decline in Asia-Pacific markets. The current signal indicates that the risk of a major drawdown has fallen substantially following the recent sharp correction.

Asset mapping & comparison

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

• MSCI Asia Pacific ex Japan Index (MXAPJ)

  The report's core regional equity exposure, up 1.0% for the week and assigned targets of 980 in 3 months and 1,080 in 12 months.

  Strengths

  CY2Q26 earnings rose 135% year over year and 52% quarter over quarter, first-half earnings completion exceeded the historical seasonal pace, and RADaR indicates lower drawdown risk.

  Weaknesses

  Foreign outflows have resumed, global long-end bond yields have risen, and earnings upgrades are continuing but slowing.

  Comparison

  The current level of 891 implies the report's stated upside of 10% over 3 months and 21% over 12 months.

  Risks

  Concerns about fiscal policy, inflation, geopolitics, and crowding out from artificial intelligence financing could continue to push up long-end rates and weigh on valuations.

• Hong Kong and China offshore equities

  They rose 4% and 3%, respectively, and were the main drivers of MXAPJ's advance this week.

  Strengths

  Hedge funds were net buyers of Chinese equities month to date, with both A-shares and H-shares receiving inflows; southbound flows are another source of liquidity monitored by the report.

  Weaknesses

  Despite recent buying, net exposure to Chinese equities remains near its lowest level in the past five years, and active funds reduced their benchmark-relative allocations in July.

  Comparison

  Performance was significantly stronger than in Taiwan, the Philippines, and Singapore.

  Risks

  China's July activity data broadly missed expectations, while fund allocations remain low.

• Korean equities

  Technology exports rebounded on stronger chip demand, but the market also faced significant selling pressure from foreign investors and hedge funds.

  Strengths

  Active funds increased allocations to Korea in July, Korean technology hardware and semiconductors received the largest sector-level allocation increase, and projected 2026 earnings growth remains exceptionally high.

  Weaknesses

  Weekly foreign outflows totaled US$1.6 billion, Korea was among the markets with the greatest net selling in Prime accounts, and long sales were 1.5 times short sales.

  Comparison

  MSCI changes are expected to result in US$1.1 billion of net outflows, while Japan, India, and Taiwan are expected to receive net inflows.

  Risks

  Recent leveraged ETF outflows, institutional position reductions, and passive selling from index changes could create compounded pressure.

• Taiwanese equities

  They fell 2% this week but are expected to receive approximately US$1.1 billion in net passive inflows from MSCI changes.

  Strengths

  The share of companies beating second-quarter expectations was relatively high, while Taiwanese leveraged ETF assets remained near record levels.

  Weaknesses

  Active funds reduced Taiwan allocations in July, Taiwanese technology hardware and semiconductors were among the sectors with the largest allocation reductions, and leveraged ETFs have recorded approximately US$1 billion of outflows since August.

  Comparison

  Taiwan is expected to receive net inflows from MSCI rebalancing, in contrast to the expected net outflows from Korea.

  Risks

  High leveraged exposure and profit-taking outflows could increase volatility.

• Japanese equities

  Although not included in MXAPJ, Japan is analyzed separately as an important Asia-Pacific allocation and MSCI-rebalancing market.

  Strengths

  MSCI changes are expected to generate the largest net passive inflow among Asia-Pacific markets, at approximately US$2.2 billion.

  Weaknesses

  Japan's second-quarter GDP missed expectations because of weak consumption and capital expenditure, while Japan was among the markets with greater net selling in Prime accounts.

  Comparison

  Expected net passive inflows exceed India's US$1.5 billion and Taiwan's US$1.1 billion.

  Risks

  Weaker-than-expected economic growth and institutional deleveraging could offset part of the passive inflows.

• Indian equities

  MSCI changes are expected to generate approximately US$1.5 billion in net passive inflows.

  Strengths

  Expected passive inflows are the second largest in Asia-Pacific after Japan.

  Weaknesses

  Asian funds are significantly underweight India, and the share of companies beating second-quarter expectations was also relatively low.

  Comparison

  Expected inflows are higher than Taiwan's but lower than Japan's.

  Risks

  The Reserve Bank of India's meeting minutes indicated a hawkish shift, and the report expects the policy rate to rise from 5.25% to 5.75%.

Key data

• MXAPJ weekly performance+1.0%Hong Kong rose 4%, China offshore markets rose 3%, Indonesia rose 2%, and Taiwan fell 2%.
• Foreign flows into Asia-Pacific emerging markets excluding China-US$1.5bnWeekly outflows, driven primarily by -US$1.6bn from Korea.
• Gross leverage of Asia fundamental long/short funds181.0%Down 14.5 percentage points month to date, its lowest in more than a year and the 43rd percentile of its five-year history.
• Net leverage of Asia fundamental long/short funds59.3%At the 59th percentile of its one-year history and the 82nd percentile of its five-year history.
• Asia net exposure28.5%An 11.7% overweight relative to the MSCI World benchmark.
• MSCI Asia-Pacific two-way passive tradingMore than US$42bnApproximately US$34bn from core indexes and another approximately US$8bn from non-core indexes including factor, ESG, and customized indexes.
• MSCI Asia-Pacific net passive inflows+US$2.2bnJapan, India, and Taiwan are expected to receive the largest net inflows, while Korea, Australia, and ASEAN are expected to see the largest net outflows.
• Korean leveraged ETF assetsUS$25bnRecovered from a low of US$16bn; their share of free-float market capitalization is listed as 1.9% in the summary and 1.8% in the main text.
• Taiwanese leveraged ETF assetsApproximately US$13bnNear a record high and equal to 0.7% of free-float market capitalization; outflows since August total approximately US$1bn.
• CY2Q26 earnings growthYear over year +135%, quarter over quarter +52%622 companies have reported, covering 84% of MXAPJ market capitalization.
• CY2Q26 earnings surprises46% beat expectations, 26% missed expectationsThe median earnings surprise was +4.3%.
• CY6M26 earnings completion51% of the full-year forecastAhead of the historical seasonal pace.
• MXAPJ index targets980 in 3 months; 1,030 in 6 months; 1,080 in 12 monthsCurrently at 891, with the report indicating 10% upside over 3 months and 21% over 12 months.
• MXAPJ EPS growth forecasts2026E +60%; 2027E +22%Goldman Sachs' top-down forecasts; consensus expectations are +72% and +24%, respectively.

Impact & implications

The report believes Asian equities continue to face near-term pressure from foreign outflows, rising long-end yields, and weak macroeconomic data in some markets, but rebounds in Hong Kong and China offshore markets, resilient technology exports, and above-seasonal earnings progress provide fundamental support. The August 31 MSCI changes could amplify divergence in trading and flows across markets and individual stocks. Over the medium term, Goldman Sachs' earnings outlook, risk model, and index targets collectively indicate further upside for MXAPJ, although profit-taking from highly leveraged Korean and Taiwanese ETFs, the slowing pace of earnings upgrades, and differences in fund flows across markets require continued monitoring.

Risks

• Foreign outflows have resumed from Asia-Pacific emerging markets excluding China, with Korea the main source of outflows this week.
• Concerns about fiscal policy, inflation, geopolitics, and crowding out from artificial intelligence financing drove a selloff in global long-duration bonds, with the US 30-year yield reaching its highest level since 2007.
• China's July activity data and Japan's second-quarter GDP missed expectations, indicating continued pressure on regional growth.
• Korean and Taiwanese leveraged ETFs have both recently experienced profit-taking outflows, and high leveraged exposure could amplify volatility.
• Asian earnings revisions remain positive, but ERLI indicates that the pace of upgrades is slowing.
• The Reserve Bank of India's hawkish shift and diverging Asian policy-rate paths could affect currencies, valuations, and cross-border fund flows.

What to watch

• Monitor the actual passive buying, selling, and trading impact generated by MSCI core and non-core index changes after the August 31 close.
• Track whether Korean foreign outflows, net buying of China, and active-fund allocation changes in Korea, Taiwan, and China persist.
• Watch whether profit-taking outflows from Korean and Taiwanese leveraged ETFs expand and whether the recovery in assets translates into genuine new demand.
• Monitor the pace of earnings upgrades indicated by ERLI, revisions to 2026 consensus expectations, and subsequent earnings releases.
• Track the Asia-Pacific and global political events, policy meetings, and economic-data calendar listed in the report.
• Observe the impact of changes in long-term government-bond yields, Asian currencies, and oil prices on regional equity valuations and technology exports.