Earnings growth to drive 19% Asian equity rally in 2027 despite AI volatility risks: Goldman Sachs

A brutal selloff in artificial intelligence stocks has knocked Asian equities off their June peak, yet Goldman Sachs sees the recent downturn as an entry point for a 19% rally next year.

While the Wall Street bank expects earnings growth to power dollar-denominated returns for the MSCI Asia ex-Japan Index in 2027, it warned that lingering uncertainty around AI could trigger fresh volatility. The regional gauge has tumbled roughly 13% since hitting a record high in June as investors unwound crowded tech trades, though gains in South Korea and Taiwan have kept the index up about 11% for the year.

To navigate the shifting landscape, Goldman Sachs reshuffled its regional allocations on Saturday to balance its AI exposure:

• Upgraded to overweight: China H-shares and India
• Downgraded to market weight: China A-shares and Taiwan
• Maintained at overweight: South Korea and Japan

“Market drawdowns in 2H26 have priced a less favorable, but still good, investment backdrop in 2027,” analysts led by Timothy Moe wrote in the report. “Valuations are attractive with wide intraregional variation.”

That optimism faces macro headwinds. The analysts projected that most Asian economies will decelerate next year as additional interest rate hikes from the Federal Reserve threaten regional growth.

In a separate note, the team flagged tightening financial conditions and diminishing returns on tech investments.

“AI capex should rise further but growth is likely to peak, as markets have stopped rewarding higher spending and credit stress persists,” they wrote. “Record credit issuance and still-high equity issuance could tighten liquidity and raise funding costs.”

Separately, the Goldman Sachs Research expects the global economy to grow by 2.8% in 2027, marginally faster than the estimated 2.7% expansion in 2026, as easing energy prices and sustained investment in artificial intelligence (AI) help offset tighter financial conditions and fading government spending support..

In its latest global economic outlook, Goldman Sachs projected that the global economy would maintain steady growth next year, with the United States, Japan and the United Kingdom expected to outperform consensus estimates.