Goldman sees 19% upside for Asia ex-Japan in 2027, with AI a swing factor

The forecast and the frame

Goldman's Asia team, led by Timothy Moe, is calling for a 19% gain for the MSCI Asia excluding Japan index in 2027, driven by profits rather than multiple expansion. They point out that, despite retreating from its peak, the index has gained roughly 11% this year when measured in dollars.

The context matters. The index has fallen roughly 13% since its June record as investors unwound AI-heavy trades, hitting some of the region's largest tech markets. That reset is part of the thesis: "Market drawdowns in 2H26 have priced a less favorable, but still good, investment backdrop in 2027," the analysts wrote, adding that "valuations are attractive with wide intraregional variation."

What drove the swing

Goldman flags AI as both a driver and a risk. They expect AI-related capital spending to increase, but also caution that the payoff may crest: "AI capex should rise further but growth is likely to peak, as markets have stopped rewarding higher spending and credit stress persists," they wrote in a separate note. The team also warns that "record credit issuance and still-high equity issuance could tighten liquidity and raise funding costs."

Meanwhile, they see most Asian economies slowing next year as additional Federal Reserve rate hikes remain a risk to growth. In plain English: higher rates can mean softer demand and pricier financing.

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Regional positioning and risks

To balance AI exposure, Goldman upgraded China H-shares and India to overweight and shifted China A-shares and Taiwan down to market weight. They kept South Korea and Japan at overweight, noting that this year's advance has leaned heavily on rallies in South Korea and Taiwan.

The through-line is consistency with the macro call. A slower growth backdrop plus ongoing AI spend, but with a market that is less willing to pay up for it, argues for being selective across the region.

Why it matters for your portfolio

The setup skews to earnings doing the heavy lifting in 2027, with valuations no longer stretched and dispersion across markets creating stock picking room. The catch is liquidity and funding risk if issuance stays high and the Fed tightens more, which could make returns choppier along the way.

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