Written by: Rita

The MSCI Global Index rose 2.9% last week, with the U.S. leading at 3.7%. However, AI trading remains highly volatile, with the KOSPI falling 7.4% in a single week, while the technology sector overall rose 5.5%. In Goldman Sachs' Global Weekly Kickstart report on August 10, it was noted that the earnings outlook is expanding, with EPS revisions in the EM region continuing to be upgraded. Korea and Taiwan's technology sectors provided the largest contributions, while financials, industrials, and energy also made significant contributions. Goldman Sachs' assessment is that the most intense phase of deleveraging related to AI may have passed, but volatility will not disappear. Korean valuations have fallen from their peak, positions have been cleared, and strategic allocation values have re-emerged.

AI Volatility and Deleveraging are in Sync, Risk Appetite Remains High

Goldman Sachs' risk appetite indicator has risen further from positive territory to above 1.0. Over the past two weeks, global tech stocks experienced the largest scale of long liquidation since 2014, with the total selling volume over two consecutive days ranking second in nearly a decade. Goldman Sachs believes that extreme readings of deleveraging are already occurring, but in the short term, volatility related to AI will not disappear.

The MSCI Global Index has risen approximately 14% year-to-date, fully recovering the declines caused by the escalation of geopolitical conflicts in March and April. The technology sector rose 5.5% last week, while communication services increased by 3.3%, and financials rose by 2.7%. Energy was the only sector to decline, falling by 3.1%, with Brent crude oil dropping more than 8%. Goldman Sachs has a target price of 8000 points for the S&P 500 by the end of 2026, with a 12-month target price of 8300 points, corresponding to about 7% upside potential. The 12-month target price for the MSCI Asia Pacific ex-Japan Index is 1080 points, implying about 26% upside potential.

Earnings Outlook Expands, EM and Europe EPS Revisions Continue to Be Upgraded

The earnings revisions in the EM region continue to improve, with EPS expectations for 2026 and 2027 being upgraded. The technology sectors in Korea and Taiwan are the main contributors, along with significant contributions from financials, industrials, and energy. Goldman Sachs' earnings sentiment indicator shows that the number of upgrades in the EM region is accelerating.

In the European market, EPS revisions for the Eurozone have been continuously upgraded since April, surpassing those in the U.S. for the first time since January 2025. Goldman Sachs' macro forecast shows that global GDP growth is expected to be 2.8% in 2026, with developed markets at 1.9% and emerging markets at 4.2%. The EPS growth rate for the S&P 500 in 2026 is expected to be 9%, STOXX Europe 600 at 4%, MSCI Asia Pacific ex-Japan at 6%, and Topix at 7%. The expansion of earnings is providing broader fundamental support for global stock markets, no longer limited to a few AI-related stocks.

Korean Valuations Have Fallen from Peaks, Re-emerging Strategic Allocation Value

This week, Goldman Sachs is focusing on Korea. The KOSPI fell 7.4% last week, with a cumulative decline of about 40% since the June peak. Goldman Sachs believes that even though AI capital expenditures are still ongoing, memory supply remains tight, and earnings expectations remain positive, valuations have dropped from their highs. The scale of leveraged ETFs has shrunk from its peak, and financing leverage exposure has decreased; tightening regulations and reduced hedge fund exposure have led to position clearing. Goldman Sachs maintains its strategic view on Korea, believing that the current position has allocation value.

Overall, valuations in the EM region remain at a discount compared to developed markets, with capital inflows accelerating, and the headwinds from Chinese trade are weakening. Goldman Sachs predicts that EPS growth in emerging markets will reach 4.1% in 2026, higher than the 1.9% for developed markets. The forward P/E ratio for the MSCI Emerging Markets Index is about 12 times, still below the approximately 20 times level of developed markets.

Extreme readings of deleveraging related to AI have appeared, earnings are expanding, and EPS revisions in EM and Europe continue to be upgraded. Goldman Sachs believes that market breadth is improving, and the clearance of AI-related positions provides tactical opportunities. Korea has fallen the most, but new semiconductor supply is not expected to be released on a large scale before 2028, making the current valuations and position combinations attractive.

Disclaimer: This article is a compilation and interpretation of third-party broker research reports (Goldman Sachs, August 10, 2026) by Chao Xiang Research, combined with publicly available market information. The ratings, target prices, earnings forecasts, and related judgments quoted in the text reflect the views of the broker's analysts, representing only the stance of their institution and do not represent the views of Chao Xiang Research, nor do they constitute any investment advice. The market carries risks, and decisions should be made independently. This article should not be used as a basis for buying or selling any securities.