Goldman Sachs anticipates a significant 19% rally in Asian equities by 2027, primarily fueled by robust earnings growth. This optimistic outlook comes despite lingering uncertainties surrounding artificial intelligence (AI) and recent market volatility that has impacted the region.
AI Volatility and Market Performance
The MSCI Asia ex-Japan Index has experienced a roughly 13% decline since reaching a peak in June, largely attributed to a brutal sell-off in AI-related stocks and investors unwinding crowded technology trades. However, gains in key markets like South Korea and Taiwan have helped the index maintain an approximately 11% increase for the year.
Despite the recent downturn, analysts led by Timothy Moe at Goldman Sachs view the current market environment as an attractive entry point for investors. Their report suggests that market drawdowns in the second half of 2026 have already priced in a less favorable, yet still positive, investment backdrop for the coming year, highlighting appealing valuations with considerable variation across the region.
Strategic Regional Allocations
In response to the evolving market landscape, Goldman Sachs has adjusted its regional allocations to better balance AI exposure. The firm upgraded China H-shares and India to an 'overweight' position, indicating a more favorable outlook for these markets. Conversely, China A-shares and Taiwan were downgraded to 'market weight'. South Korea and Japan maintained their 'overweight' status.
Macroeconomic Headwinds and Global Context
While the earnings growth forecast is strong, Goldman Sachs acknowledges several macroeconomic headwinds. Analysts project that most Asian economies will experience a deceleration next year, partly due to anticipated additional interest rate hikes from the Federal Reserve, which could threaten regional growth. Tightening financial conditions and potentially diminishing returns on tech investments were also flagged as concerns.
The report also noted that while AI capital expenditure (capex) is expected to continue rising, its growth is likely to peak. This, combined with persistent credit stress, record credit issuance, and high equity issuance, could lead to tighter liquidity and increased funding costs.
On a broader scale, Goldman Sachs Research expects the global economy to expand by 2.8% in 2027, a marginal increase from the estimated 2.7% growth in 2026. This global growth is projected to be supported by easing energy prices and sustained investment in AI, which are expected to offset tighter financial conditions and a reduction in government spending support. The United States, Japan, and the United Kingdom are anticipated to outperform consensus estimates within this global forecast.