By Jamie Chisholm
South Korea and Japan have left Wall Street in the dust in 2026
The surge in SK Hynix's stock has been a major propellant behind South Korea's KOSPI index.
Amid all the frantic churning - with many tech stocks battered but some cyclicals and defensive plays rallying - the U.S. equity market has gone pretty much nowhere in 2026.
But while the S&amp;P 500 is down 0.14% this year, some Asian markets have been &#34;bangers,&#34; according to Tony Pasquariello, global head of hedge-fund coverage at Goldman Sachs.
In a note published over the weekend, he noted why he thinks South Korea and Japan in particular have further to go.
Seoul's KOSPI index KR:180721 rose 8% in the last week - good for its best week in five years. It has more than doubled since the end of 2024, he said. The KOSPI is up 31% for the year.
It's not hard to see what's powered much of this advance. By far the index's two biggest companies are Samsung Electronics (KR:005930) and SK Hynix (KR:000660), chip makers whose shares have surged 51% and 35% so far this year amid rampant AI-linked demand.
Pasquariello said that, with such large gains, many investors have been asking if they should reduce their South Korean positions. &#34;We think it is still too early,&#34; he said. &#34;We remain overweight and raise our KOSPI target to 6,400, implying over 20% upside.&#34;
He cited four reasons for this bullish stance. First, aggregate earnings growth is &#34;remarkably strong.&#34; After an increase of 36% last year, he forecasts 120% growth in 2026.
Second, valuations remain attractive. The Seoul market is trading on a 12-month forward price-to-earnings multiple of 8.7 and a 24-month forward P/E ratio of just 7.8, according to Pasquariello. In addition, on a price to book vs. return on equity ratio, the South Korean market is more attractively valued than other markets in the region.
Next, investors' positioning is conservative, with foreign ownership of the South Korean equity market below the midpoint of the long-term range, according to Pasquariello. Foreign institutional investors have net sold $6 billion of South Korean stock for the year to date, while retail investors were net sellers last year and &#34;only recently turned net buyers,&#34; he said.
Furthermore, cash balances in retail-brokerage accounts are at a record high of around 100 trillion Korean won ($70 billion), &#34;which points to future buying,&#34; he added.
The final point is that South Korea &#34;is making tangible progress on improving corporate governance under the Value Up program withadditional catalysts expected in coming quarters,&#34; Pasquariello said.
For Japan, whose Nikkei 225 JP:NIK is already up 12.9% this year, Pasquariello said there are two reasons he is bullish.
First, Goldman analysts don't consider positioning to be stretched. &#34;In fact, while gross and net exposures in Japanese equities are rising, as a percentage of our total PB [prime brokerage] book, they're still well below the pre-COVID peak,&#34; he said.
Pasquariello noted that foreign positioning is still not back to the levels just before the Bank of Japan's rate hike delivered extreme volatility in July 2024.
The second issue is that &#34;a correlation switch has been flipped,&#34; he said. The prevailing trend of recent years was for relatively low Japanese interest rates to weaken the yen (USDJPY), which supported stocks. But the recent pattern has seen relatively higher Japanese interest rates, making the yen a bit stronger - but pushed equities higher.
&#34;That all looks to me much more like a reflation trade than a debasement trade,&#34; Pasquariello said, referring to the prospect for a fiscal boost in Japan and the recent talk of waning dollar attractiveness.
His final point was that Goldman does not see much evidence that investors are outright selling U.S. equities to fund overseas stock purchases. Instead, &#34;It looks like the marginal unit of investment is being redirected to non-U.S. markets rather than the U.S., and those marginal flows are having a large impact given the relative size of markets.&#34;
-Jamie Chisholm
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(END) Dow Jones Newswires
02-16-26 0749ET

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Goldman Sachs highlights the strong performance of South Korea and Japan's markets in 2026, with South Korea's KOSPI index up 31% this year, driven by major companies like Samsung and SK Hynix. Analyst Tony Pasquariello remains bullish, raising the KOSPI target to 6,400, citing strong earnings growth, attractive valuations, conservative investor positioning, and improvements in corporate governance. Japan's Nikkei 225 is also performing well, with analysts noting that foreign positioning is not stretched and recent interest rate changes may support equities. Overall, Goldman sees potential for further gains in these Asian markets.

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These Asian markets have been 'bangers' this year. Here's why they have further to rally, says Goldman Sachs