While improving economic conditions and the continued monetary easing prompted the strategists to raise their earnings forecasts, the gauge’s path higher “could be bumpy, with markets correcting before rallying to year-end,” they wrote in an Aug 13 note. Their short-term target implies a drop of 5%-6% in the next three months.
Stocks in the wider Asia-Pacific region are set to erase this year’s declines, helped by unprecedented stimulus from central banks and investor perception of the outbreak being better contained in the region than in the US or Europe.
A falling dollar will drive portfolio flows to the region as China’s economic activity gains momentum, Goldman’s strategists said, adding a slowdown in Asia’s rebound and a resurgence in the US-China tensions can undermine the bullish narrative. While improving prospects for a vaccine may provide a further boost to stocks, an accompanying spike in bond yields could lead to disruption, they wrote.
China and South Korea are preferred investment destinations for the bank, which recommends overweight positions in sectors including the Internet, health care, media, consumer retail and technology hardware.
