Goldman Sachs recommends continuing to hold the winners in Asian equities in 2H 2026: North Asia, technology hardware, and the earnings growth theme

Overview

This is a Goldman Sachs strategy report on the 2H 2026 allocation playbook for Asian equities. It notes that Asian equities performed strongly in 1H 2026 but were heavily driven by South Korea, Taiwan, and technology hardware; against a backdrop of a macro environment turning back toward reflation, lower oil prices improving the outlook for Asia’s energy importers, and rising explanatory power of earnings growth, the authors recommend continuing to hold the leading markets and themes rather than rotating prematurely into lagging sectors.

Core views

The core view is to “stay with the winners”: earnings growth remains the primary driver of Asian equity returns, and North Asian markets and the technology hardware chain have the strongest earnings elasticity; therefore, investors should maintain overweight positions in South Korea, Taiwan, Japan, and China A-shares, while continuing to favor technology hardware, capital goods, and banks. The report also emphasizes that concentrated gains and rising speculation imply higher short-term drawdown risk, so portfolios should retain structural long exposure while using derivatives such as put spread collars to cover downside risk.

Analysis framework

The report forms its views by combining macro judgment, market return attribution, earnings forecasts, cross-sectional regression, historical scenario comparisons, thematic basket performance, and valuation screening. The macro section assesses growth, policy, the US dollar, and oil prices; the market section compares MXAPJ, South Korea, Taiwan, Nikkei, Topix, and other regional performance; the earnings section uses EPS growth and earnings revisions to explain market differences; and the risk section uses concentration, leveraged ETFs, PEG, and primary market supply to assess drawdown pressure.

Methodology notes

• Market return attributionCross-sectional regression of earnings growth and earnings revisions

  Use cross-sectional regression of regional market year-to-date returns against earnings growth and earnings growth forecast revisions.

  The report states that nearly 80% of regional market year-to-date returns can be explained by earnings growth or revisions to earnings growth forecasts, while the r-square between forward 12-month earnings changes and index returns is close to 90%, indicating that the market is currently trading earnings much more aggressively.

• Historical scenario analysisReview of 2H performance after a strong 1H return with positive earnings revisions

  Screen for years in the past 30 years when MXAPJ rose at least 10% in the first half and earnings revisions were positive.

  There were only 5 comparable instances, and the median return in the following second half was 13%; the best year was 26%, and even the worst year was still 9%. Based on this, the report sees the current setup as favorable for second-half performance, though the sample is limited.

• Theme and valuation screeningPEG percentile screening for the AI hardware supply chain

  Compare year-to-date returns and PEG across 11 AI hardware supply chain sub-industries in South Korea, Taiwan, Japan, China A-shares, and H-shares.

  The report believes that valuations relative to growth remain reasonable in most sub-industries, but stock-level differences are large, so it screens low-PEG and high-PEG percentiles to seek alpha and manage drawdown risk.

• Risk hedgingPut spread collar and index put spread

  Use KOSPI200, TWSE, and Nikkei index option structures to manage drawdown risk in South Korea and Taiwan.

  The report prefers zero-cost put spread collars on KOSPI200 and TWSE, and also proposes a Nikkei 95%/85% Dec put spread as a correlation hedge tool.

Asset mapping & comparison

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

• MXAPJ

  Regional core index and target vehicle

  Strengths

  Macro reflation, high earnings growth, and historical scenarios all support continued upside in the second half.

  Weaknesses

  Index performance is highly dependent on a small number of North Asian technology hardware heavyweights.

  Comparison

  +21% in the first half, but -9% excluding South Korea and Taiwan.

  Risks

  Overly narrow market breadth, changes in earnings expectations, geopolitics, and primary market supply.

• South Korea

  Overweight market

  Strengths

  Strongest earnings growth, with high exposure to AI hardware and the semiconductor chain.

  Weaknesses

  First-half gains were too large, and speculation in retail leveraged ETFs is heating up.

  Comparison

  The report forecasts 2026 EPS growth of 320%, significantly above most Asian markets.

  Risks

  Concentration, leveraged flow rebalancing, technology hardware drawdowns, and profit-taking.

• Taiwan

  Overweight market

  Strengths

  Clear beneficiary of the technology hardware supply chain and AI infrastructure, with strong earnings growth.

  Weaknesses

  Valuation and expectations are sensitive to AI hardware momentum.

  Comparison

  +56% in the first half, with 2026/2027 EPS expected at +48%/+30%.

  Risks

  Downward revision to AI demand expectations, semiconductor cycle volatility, and geopolitics.

• Japan

  Overweight market

  Strengths

  The more technology-heavy Nikkei has performed strongly and remains supported by structural themes.

  Weaknesses

  Some gains are concentrated in technology-related indices.

  Comparison

  Nikkei +38% in the first half, clearly outperforming Topix at +16%.

  Risks

  Global technology trade drawdowns, FX, and policy changes.

• China A-shares

  Overweight market

  Strengths

  A-share technology hardware-intensive indices have outperformed offshore China, with STAR50 +51% year to date.

  Weaknesses

  Offshore China has lagged this year, and sentiment toward China assets remains divided overall.

  Comparison

  The report prefers China A-share opportunities rather than a broad bullish call on offshore China.

  Risks

  Insufficient earnings revisions, policy expectation gaps, and changes in foreign investor risk appetite.

• Technology hardware and AI infrastructure supply chain

  Core overweight theme

  Strengths

  AI compute demand, memory supply shortages, and high operating leverage are driving earnings higher.

  Weaknesses

  Trade crowding and optimism in expectations are rising.

  Comparison

  Technology hardware +91% in the first half, making it a key driver of regional performance.

  Risks

  PEG divergence, valuations pricing in future earnings too early, and reversals in order or pricing cycles.

• Power demand and energy security

  Structural beneficiary theme

  Strengths

  Expansion in AI computing capacity drives demand for power generation and grid investment, while energy security policy provides additional support.

  Weaknesses

  Long project cycles, with high capex and regulatory uncertainty.

  Comparison

  Expressed through thematic baskets such as Power & Electricity, Renewables, and Nuclear.

  Risks

  Interest rates, policy subsidies, execution delays, and commodity cost volatility.

• KOSPI200, TWSE, Nikkei option structures

  Downside risk hedging tools

  Strengths

  Can cushion drawdowns in South Korea, Taiwan, and regional technology while retaining part of the upside.

  Weaknesses

  Protection effectiveness depends on volatility, tenor, strike, and correlation.

  Comparison

  The report prefers zero-cost put spread collars on KOSPI200 and TWSE; the Nikkei 95%/85% Dec put spread has a reference cost of 3.35%.

  Risks

  The market not falling into the protection range, correlation changes, option theta, and liquidity risk.

Key data

• MXAPJ first-half performance+21%The 4th best first half and 3rd best second quarter in 39 years of history.
• Asian regional performance excluding South Korea and Taiwan-9%Shows that first-half gains were highly dependent on North Asian technology hardware markets.
• South Korea and Taiwan first-half performanceSouth Korea +119%, Taiwan +56%These were the main sources of MXAPJ gains.
• Japan market performanceNikkei +38%, Topix +16%The more technology-heavy Nikkei clearly outperformed.
• MXAPJ earnings forecast2026 EPS +60%, 2027 EPS +22%The report sees earnings growth as the core foundation of its market and thematic views.
• South Korea and Taiwan earnings forecastsSouth Korea 2026/2027 EPS +320%/+35%; Taiwan +48%/+30%The earnings growth differential supports continued overweight on North Asia.
• MXAPJ target12-month target 1,080Implies 23% USD price return and 25% total return.
• Historical scenario return2H median return 13%Based on 5 comparable samples from the past 30 years when first-half gains were at least 10% and earnings revisions were positive.
• Brent oil price forecast4Q 2026 $80/bbl, 2027 average $75/bblLower than the previous forecasts of $90 and $80, benefiting Asian energy-importing economies.
• Market concentration8 stocks contributed 96% of MXAPJ year-to-date gainsA small number of heavyweight semiconductor stocks have had a major impact on the index.
• South Korea leveraged ETF assetsRose from about $5 billion to over $40 billionRetail speculation and dealer gamma hedging may amplify index volatility.
• Estimated KOSPI rebalancing flowA 5% index move could trigger nearly $6 billion of same-direction rebalancingEquivalent to 16% of one month’s average daily turnover.

Impact & implications

For portfolios, the report supports continuing in 2H 2026 to concentrate Asian equity risk budgets in North Asia and the technology hardware chain, where earnings growth visibility is highest, rather than simply buying lagging markets. On the hedging side, investors need to acknowledge that South Korea, Taiwan, and AI hardware trades have become crowded, making option structures suitable for reducing left-tail risk. On the thematic side, AI computing power, memory shortages, power investment, defense, capital-intensive assets, and China A-share technology opportunities remain the main allocation clues.

Risks

• Market leadership is extremely narrow, with 8 stocks contributing 96% of MXAPJ year-to-date gains.
• The rapid rise in South Korean retail leveraged ETF size may amplify volatility through dealer gamma hedging.
• Optimistic expectations for technology hardware are rising, and some stocks may already reflect future earnings in advance.
• Increased primary market issuance and subsequent lock-up expirations may periodically pressure secondary market performance.
• Geopolitics may still affect oil prices, the US dollar, risk appetite, and capital flows into Asian markets.
• If earnings growth or earnings revisions slow, the current earnings-driven bullish thesis will be weakened.

What to watch

• The 2Q earnings season from July to August, to verify whether earnings momentum can continue.
• Regional central bank policy meetings, to observe whether the shift from easing to selective tightening broadens.
• US-Iran negotiations, Hormuz-related developments, and arrangements for the Chinese president’s visit to the US.
• Spillover effects of the US midterm elections on US equities and Asian risk appetite.
• The pace of primary market issuance and shareholder lock-up expiration timetables.
• The relative performance of low-PEG and high-PEG groups within the AI hardware supply chain.