Goldman Sachs Bullish on Asian Markets: South Korea and Japan Outperform Wall Street in 2026

The MarketWatch report published on February 16, 2026, highlights a significant shift in global market leadership, with Asian equities—particularly South Korea and Japan—delivering exceptional returns that dwarf U.S. market performance [1]. This remarkable divergence reflects a confluence of fundamental factors, including the semiconductor supercycle, attractive valuations, and structural reforms in corporate governance, while also responding to the “Sell America, Buy Asia” trade theme that has gained momentum among institutional investors.

South Korea’s KOSPI has emerged as the standout performer, delivering approximately 30% gains year-to-date, climbing from 4,224.53 to 5,507.01. This surge follows an extraordinary 176% gain since April 2025, prompting Goldman Sachs to raise its year-end 2026 target to 7,000 from 6,400 [2]. The investment bank’s revised earnings growth forecast of 130%—the third revision this year—underscores the robust fundamental drivers supporting Korean equities, particularly the memory semiconductor cycle that continues to benefit from supply shortfalls and pricing power.

Japan’s Nikkei 225 has posted an impressive 11.63% gain year-to-date, reaching 56,941.97 from 51,010.28. However, Goldman Sachs has adopted a more cautious stance on Japanese equities, revising its 3-month TOPIX target downward to 3,900 from 4,200 and its 6-month target to 4,100 from 4,400 [3]. The reduced outlook reflects concerns over geopolitical tensions in the Middle East affecting global risk sentiment and oil price volatility, with the bank now projecting Brent crude to reach $110/barrel in March before declining to $71 by Q4 2026. This has prompted a downward revision of Japan’s 2026 GDP growth forecast from 0.8% to 0.5%.

The recent market correction, which saw the KOSPI decline 20% from February highs and the Nikkei fall 5.2% alongside a 6% drop in Korean equities during the Middle East conflict-related selloff, has been characterized by Goldman Sachs as a

[2]. The March 5 rebound lifted the KOSPI above its 30-day moving average, technically confirming the corrective rather than bearish nature of the pullback.

: The Korean market’s exceptional performance is fundamentally anchored in the memory semiconductor cycle, described by Goldman Sachs as an “exceptionally favorable” environment for memory chip makers. DRAM and NAND supply shortfalls are driving sharp price increases, and the high operating leverage in this sector translates these price gains directly into outsized earnings growth. This sector concentration represents both the primary driver of current gains and a key consideration for assessing sustainability.

: Korean equities trade at a forward P/E of 8.8x (12-month) and 7.8x on a 24-month forward basis—levels that Goldman Sachs characterizes as “undemanding” relative to fundamentals [2]. This contrasts sharply with elevated U.S. equity valuations and provides a meaningful margin of safety, though investors should verify earnings quality and sustainability given the cyclical nature of semiconductor demand.

: The Goldman Sachs analysis reveals a clear bifurcation between South Korea’s bullish outlook and Japan’s more cautious stance. While Korea benefits from the semiconductor supercycle and AI-related diversification opportunities (robotics, power equipment, nuclear power, defense, and shipbuilding), Japan faces headwinds from geopolitical uncertainty, oil price volatility, and weaker economic growth projections.

: During the recent correction, South Korea experienced net selling by foreign investors, creating potential for significant reversal flows if sentiment improves. The $15 billion in exits from Asian equities during the acute phase of the oil shock represents both a risk factor and, paradoxically, a potential catalyst for renewed buying if conditions stabilize [6].

: On February 19, 2026, South Korea’s KOSPI hit a fresh record high of 5,677.25, jumping more than 3%, confirming the market’s continued strength and validating Goldman Sachs’s constructive outlook [4].

1. Continued Semiconductor Cycle
   : The memory chip supercycle remains a powerful fundamental driver, with supply constraints expected to persist. Companies with high operating leverage to DRAM/NAND pricing stand to deliver continued earnings surprises.

2. Valuation Expansion
   : At 8.8x forward P/E, Korean equities have significant room for multiple expansion if earnings growth materializes as forecast and foreign investor flows return.

3. AI and Industrial Diversification
   : Beyond semiconductors, Korean companies in robotics, power equipment, nuclear power, defense, and shipbuilding sectors are well-positioned to benefit from U.S. reindustrialization trends.

4. Technical Confirmation
   : The KOSPI’s return above its 30-day moving average provides technical validation of the bullish thesis, potentially attracting momentum-based investors.

1. Geopolitical Escalation
   : Further conflict in the Middle East could trigger additional selloffs in Asian equities, with Goldman Sachs noting $15 billion in exits during the acute phase of recent tensions [6].

2. Oil Price Volatility
   : Prolonged elevated oil prices could dampen global growth and negatively impact risk appetite. Goldman Sachs now expects a 21-day reduction in crude-oil exports through the Strait of Hormuz, up from previous estimates of 10 days [3].

3. Semiconductor Cycle Peak
   : Memory chip prices have already risen significantly, raising questions about how much further the cycle can extend before normalization.

4. Foreign Investor Sentiment
   : The current net selling by foreign investors during corrections creates vulnerability to further outflows if sentiment deteriorates.

5. Japanese Market Weakness
   : Japan’s reduced GDP growth outlook and downward-revised TOPIX targets could drag on regional sentiment and create headwinds for cross-border investment flows.

The analysis presents a compelling case for continued Asian equity outperformance, particularly in South Korea, where fundamental drivers align with attractive valuations and positive technicals. The KOSPI’s exceptional 30%+ year-to-date gain reflects both the semiconductor supercycle and the broader “Sell America, Buy Asia” trade theme that has gained traction among global investors.

Key quantitative highlights from the data [0] include:

• KOSPI YTD Performance
  : +30.36% (from 4,224.53 to 5,507.01)
• Nikkei 225 YTD Performance
  : +11.63% (from 51,010.28 to 56,941.97)
• S&P 500 YTD Performance
  : -0.61% (from 6,878.11 to 6,836.18)
• Korean Forward P/E
  : 8.8x (12-month), 7.8x (24-month)
• Goldman Sachs KOSPI Target
  : 7,000 (year-end 2026)
• Earnings Growth Forecast
  : 130% for 2026

The sustainability of this rally depends significantly on geopolitical developments in the Middle East and the trajectory of oil prices. While the recent correction has been characterized as healthy rather than the start of a bear market, investors should remain attentive to the flow dynamics of foreign investors and the durability of the semiconductor cycle that underlies much of the Korean market’s strength.

Japan presents a more nuanced opportunity, with structural reforms and corporate governance improvements providing long-term support, but near-term headwinds from geopolitical uncertainty and oil price volatility warrant a more selective approach.