The team also upgraded Hong Kong stocks to market-weight, touting them to be among the key beneficiaries of the dollar weakness resulting from the US Federal Reserve’s easing cycle.
The Philippines and Taiwan are the other regional markets “most positively sensitive” to these factors, they added.
“Tariff imposition and easing monetary policy are likely to be important macro influences on Asian equity markets in the third quarter,” the strategists said.
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Even if the tariff rates imposed are somewhat above current baseline expectations, “the fundamental growth impact may not be as negative as markets feared in early second quarter”, they said.
Earnings growth will also be a dominant driver of returns, they added, given that regional stocks’ 14 times forward earnings ratio is in line with “macro-modelled fair value”.
Goldman Sachs had downgraded Hong Kong stocks to underweight in November, due to weak property and retail sectors, as well as less policy flow-through from China’s domestic easing. The Hang Seng Index and the MSCI Hong Kong Index have each risen at least 18% since then.
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The strategists maintained their overweight stance on China, Japan and Korea while downgrading Malaysian stocks to underweight amid a preference for North Asian markets.
Chart: Bloomberg
