[Goldman Sachs Asia Strategy / 2026.02.13]

Asian Equities: The Party Isn't Over - Strong Earnings Growth Overcomes Valuation Concerns

1. Market Overview: A Hot Rally, Is It a Bubble?

The Asia (ex-Japan) index has risen 9% year-to-date. In particular, semiconductor powerhouses such as South Korea (28%), Taiwan (16%), and Japan (15%) are leading the market. While there are desires to realize profits and debates about peak valuations due to the recent surge, Goldman Sachs believes there is still ample upside potential and has revised its target index upward.

2. Rationale for the Rise: Earnings Are Growing Faster Than Prices

Although stock prices have risen, the outlook for corporate earnings has increased even more significantly, maintaining valuation attractiveness. The 2026 earnings per share (EPS) growth forecast for Asia (ex-Japan) has been significantly raised from 24% to 31%.

The increase in earnings forecasts (over 10%) is greater than the increase in stock prices (9%), alleviating PER pressure. The key driver is, of course, semiconductors, with the earnings growth forecast for South Korea rising from 75% to 120% and for Taiwan from 30% to 32%.

3. Key Strategies by Country

[Korea] Most Preferred (Overweight), Targeting KOSPI at 6,400

Presenting a KOSPI target of 6,400 points, it was viewed that there is approximately 20% upside potential from current levels. The rationale was based on the sharp increase in the 2026 capital expenditure (Capex) forecast for cloud companies from $548 billion to $666 billion, the reduced supply of general DRAM due to the concentration on HBM production, and the possibility of supply shortages continuing until 2027-2028 (supercycle) due to increased process complexity. Expectations for the Value-Up Program and amendments to the Commercial Act are also positive.

[Japan] Multiple Expansion Driven by Political Stability

The investment opinion was upgraded to Overweight. The Liberal Democratic Party (LDP), led by Sanae Takaichi, achieved a landslide victory in the election (securing 68% of the seats), resolving political uncertainty. It was noted that, as in the past cases of the Koizumi and Abe cabinets, valuation (PER) tends to increase when a strong ruling party is formed and political stability is achieved.

[China & India] Opportunities Remain

China, after a rally last year followed by a correction, has reached a PER of 12.5x, making it an opportune time to enter, considering AI investment and policy support. In India, uncertainty has been resolved with the announcement of the US-India trade agreement, and the balance between infrastructure investment and fiscal soundness is positive.

4. Risk Management: Be Mindful of Corrections

The market has surged 54% in the past 10 months. Statistically, corrections of 10% or more have occurred every 8-9 months, and the GS risk model also warns of a medium level of correction risk. It was advised to stay invested but to implement hedging strategies or build portfolio defense with low-volatility, high-dividend growth stocks.

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StockHub Insight & Comments

This Goldman Sachs report emphasizes that the quality of the rise is different, going beyond simple optimism about further gains.

First, the full-fledged earnings-driven market. The key is that the market is entering a phase where earnings justify stock prices, rather than being pushed up by liquidity. In particular, setting the earnings growth forecast for South Korea at 120% suggests that the current semiconductor cycle is a structural growth period (AI-based supercycle) that surpasses past typical cycles.

Second, attention to Japan's political momentum. A point that Korean investors may easily overlook is the resolution of Japan's political risk. The LDP's landslide victory and political stability serve as a powerful catalyst for foreign investors, removing uncertainty in the Japanese market. It is an environment where South Korea's semiconductors and Japan's materials/components/equipment and manufacturing industries can rise together.

Third, the need for prudent risk management. One should not be fixated solely on the number of KOSPI 6,400. The mention of the 54% surge in the past 10 months and the possibility of corrections at the end of the report is very realistic advice. While maintaining a bullish view, it seems effective to leave cash reserves to buy on short-term dips or to employ a barbell strategy by mixing in low-volatility stocks.