Goldman Sachs Research Report Analysis: 135% Profit Growth in Q2, APAC Valuations Fall to a Decade Low
Goldman Sachs Asia Pacific Market Report Summary (Aug 21, 2026)
Earnings soared 135% YoY in Q2 for the MXAPJ index, with 46% of companies beating expectations, led by the Information Technology sector (+390% YoY). Despite this robust profit growth, the index's forward P/E of 11x sits 2 standard deviations below its 10-year average, indicating deep valuation discount. Market sentiment remains cautious, as seen in hedge fund leverage for Asian long/short funds dropping to a one-year low. While China saw net buying in August, its allocation remains near five-year lows, and foreign investors withdrew $1.5bn from EM Asia ex-China markets.
The valuation gap is attributed to market pessimism on future growth, not aligning with consensus EPS growth forecasts of 71% for 2026 and 24% for 2027. The upcoming MSCI index rebalancing is expected to trigger approximately $42bn in total two-way passive fund flows. Leveraged ETF flows in Korea and Taiwan show signs of cooling, suggesting a reduction in crowded long positions.
Goldman Sachs' core trades include long positions in stocks with strong earnings revisions and AI infrastructure/semiconductors. Key downside risks are rising long-term US bond yields, heightened geopolitical tensions, and a slower-than-expected Chinese economic recovery. The firm maintains a 12-month target of 1080 for MXAPJ, implying 21% upside.
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