Asia Pacific ex-Japan equities enter a risk-off phase, with pressure on North Asia and tech

Overview

This is a Goldman Sachs weekly strategy report on Asia Pacific ex-Japan equities, focusing on MXAPJ's pullback amid risk-off sentiment, regional and sector performance, foreign and retail fund flows, pressure from Korean leveraged ETFs, valuation and earnings revisions, geopolitical developments, and macro events. The report shows that MXAPJ fell about 3.7% to 4% this week, with Indonesia, Malaysia, and Hong Kong outperforming, while Korea, Taiwan, and China A-shares underperformed; Consumer Retail, Energy, and Property led gains, while Tech Hardware & Semis, Capital Goods, and Telecom Services lagged.

Core views

Near-term market pressure comes from a reversal in North Asia momentum, a pullback in the tech sector, foreign outflows, escalation in the US-Iran conflict, and mixed China activity data. Even so, MXAPJ is still up 16% year-to-date, Korea and Taiwan remain the strongest-performing markets this year, and Goldman Sachs' 12-month MXAPJ target is 1,080 versus the current 839, indicating the report is not outright bearish but combines short-term defensiveness with selective medium-term constructiveness.

Analysis framework

The report uses regional and sector scorecards, price performance, valuation percentiles and z-scores, consensus earnings growth and revisions, foreign net buying, retail fund flows, Korean leveraged ETF scale and rebalancing pressure, macro forecasts, and policy and geopolitical risk indicators to assess the risk-reward profile of Asia Pacific ex-Japan equities.

Methodology notes

• Market strategyGS Asia Regional Market/Sector Scorecard

  Regional and sector allocation scoring

  It compares markets and sectors within MXAPJ using indicators such as price returns, valuation, earnings growth, earnings revisions, and foreign flows, and forms OW, MW, and UW allocation views.

• Risk monitoringRegional Asia Drawdown Risk model (RADaR)

  Regional drawdown risk model

  The report states that after the recent sharp sell-off, this model shows that regional market drawdown risk has fallen significantly, and it is used to assess post-correction downside risk.

• Derivatives and fund flowsLETF delta rebalancing flow estimate

  Korean leveraged ETF rebalancing pressure

  The report uses leveraged ETF NAV, daily returns, and target exposure to estimate delta rebalancing flows, noting that on highly volatile days these flows may exceed 20% of Korea's daily turnover.

Asset mapping & comparison

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

• MXAPJ

  Core index under coverage

  Strengths

  Still up 16% year-to-date, with a 12-month target of 1,080 above the current 839, and earnings remain resilient.

  Weaknesses

  Down about 3.7% to 4% this week and 9% below the June 22 high, with continued foreign outflows.

  Comparison

  Compared with ASEAN, this round of pressure is more concentrated in North Asia; compared with the US and Europe, the report conducts cross-market comparisons through valuation and earnings indicators.

  Risks

  Geopolitical conflict, rising oil prices, foreign outflows, a tech-sector pullback, and mixed China macro data.

• Korea equities

  High-beta North Asia market and Goldman Sachs OW market

  Strengths

  Up 83% year-to-date and still one of the strongest markets in the region, with Goldman Sachs maintaining an OW view.

  Weaknesses

  Down 28% since June 22, with rising pressure from leveraged ETFs and margin trading.

  Comparison

  Year-to-date performance is stronger than most markets, but the recent drawdown is significantly larger than in ASEAN markets.

  Risks

  Leveraged ETF rebalancing, forced liquidation, elevated implied volatility, and policy restrictions on single-stock leveraged ETFs.

• Taiwan equities

  Core market with high exposure to tech and semiconductors

  Strengths

  Up 52% year-to-date, with Goldman Sachs maintaining an OW view.

  Weaknesses

  Down about 6% this week, with US$8.8bn of foreign outflows.

  Comparison

  Along with Korea, it has been among the leading markets this year, but it has come under clear pressure in this North Asia risk-off phase.

  Risks

  Momentum reversal in tech hardware and semiconductors, foreign withdrawals, and weakening global risk appetite.

• Tech Hardware & Semis

  Largest sector weight in MXAPJ and Goldman Sachs OW sector

  Strengths

  Strong year-to-date performance, with an approximate sector weight of 39% in the table, and Goldman Sachs maintains an OW view.

  Weaknesses

  Down about 9% this week, making it one of the main drags on regional performance.

  Comparison

  Clearly underperformed Consumer Retail, Energy, and Property this week.

  Risks

  Pullback in crowded trades, revisions to earnings expectations, and foreign outflows from Taiwan and Korea.

• Brent crude

  Cross-asset transmission variable for geopolitical conflict

  Strengths

  Price supported by the escalation of the conflict, up 12% for the week.

  Weaknesses

  Creates pressure on equity risk appetite and input costs.

  Comparison

  Relative to equities, crude oil acts as a beneficiary asset during risk events.

  Risks

  Further escalation or easing in the US-Iran conflict could both cause price volatility.

Key data

• MXAPJ weekly performanceabout -3.7% to -4%Both the report cover and performance snapshot show a clear weekly pullback in MXAPJ.
• MXAPJ drawdown from June 22 high-9%It had previously rebounded 29% from the post-Middle East conflict low, and is still up 16% year-to-date.
• Current MXAPJ index level839Pricing data as of July 17, 2026.
• MXAPJ 12-month target1,080Target as of Jun-2027.
• EM Asia ex-China foreign flow this week-US$9.2bnMainly driven by Taiwan at -US$8.8bn, with Korea at about -US$0.4bn.
• EM Asia ex-China foreign flow year-to-date-US$175bnMore than US$120bn of this occurred since early May.
• Korean leveraged ETF AUMfell from US$53bn to US$27bnLeveraged exposure is about 2.2% of free-float market cap.
• Recent net inflow into Korean leveraged ETFsUS$8bnRetail investors have continued buying on dips since June 22.
• KOSPI 200 three-month implied volatilityabove 70%Reflects that volatility in the Korean market remains elevated.
• Brent crudeUS$86/bbl, up 12% for the weekDriven by escalation in the US-Iran conflict.

Impact & implications

For portfolios, the report suggests focusing in the near term on deleveraging of crowded trades in North Asia and tech, continued foreign selling, and geopolitical oil-price shocks; however, after the sharp correction, valuation, earnings resilience, and Goldman Sachs' 12-month target still support selective medium-term positioning. Korea and Taiwan still have relative strength this year and earnings support, but volatility and leverage pressure are high; ASEAN, Hong Kong, and parts of the consumer and energy sectors were relatively defensive in this week's performance.

Risks

• Escalation in the US-Iran conflict could raise oil prices and risk premia.
• Continued foreign selling in EM Asia ex-China, especially in Taiwan and Korea.
• Momentum reversal in North Asia and the tech sector could trigger further deleveraging.
• Korean leveraged ETFs, margin balances, broker receivables, and forced liquidation ratios indicate rising pressure.
• China Q2 GDP slowed and missed expectations, while property and consumption remain weak.
• India inflation is accelerating and the trade deficit is widening, with regional macro data diverging.
• Major central bank meetings and policy events could alter rates and risk appetite.

What to watch

• Jul 28-29 FOMC Meeting.
• Jul 31 BOJ Meeting.
• China's July Politburo economic policy meeting.
• Aug Jackson Hole Economic Policy Symposium.
• Aug-Sep 58th ASEAN Economic Ministerial Meetings.
• Sep 15-16 FOMC Meeting with Summary of Economic Projections.
• Sep 18 BOJ Meeting.
• Oct 12 2026 IMF World Bank Group Annual Meetings (Thailand).
• The market impact after Korea's new rules on single-stock leveraged ETFs and the KRW 30mn minimum cash margin requirement take effect on August 5.
• Foreign flows into Taiwan and Korea, Korean leveraged ETF rebalancing flows, KOSPI 200 implied volatility, and the MXAPJ earnings revision trend.