Goldman Sachs Market Team Perspective: India has dropped significantly but has not reached a bottom, Japan faces short-term correction risks, considering the "underweight U.S. technology" strategy

As the global macroeconomic and market dynamics become increasingly complex, investors are facing a series of critical strategic choices.

Goldman Sachs' Marquee market team pointed out in its latest analysis that despite significant volatility in some markets, investors need to remain cautious while chasing opportunities. The firm believes that now is not a good time to buy Indian stocks, the Japanese stock market is facing short-term correction pressure, and a more core strategic question is whether to start considering building a globally diversified portfolio with underweight positions in U.S. tech stocks.

In the Asian market, Goldman Sachs provided a calm assessment of two major hotspots. Regarding the Indian market, although the MSCI India Index has significantly underperformed the global index by nearly 20% since Goldman Sachs downgraded its rating last October, the firm believes its valuation remains too high, and the bottom-fishing opportunity has not yet arrived. Meanwhile, the Japan's Topix index, which has reached a historical high, is technically overbought and faces seasonal weakness historically, making short-term correction risks non-negligible.

In the U.S., a more challenging question has emerged: should investors underweight the tech giants that have dominated the global market over the past five years? Goldman Sachs' market team believes that in the context of extremely narrow market breadth, this is a question all investors should consider. At the same time, although U.S. economic data shows signs of "stalling," Goldman Sachs' economists expect the Federal Reserve to stick to a gradual path of 25 basis point rate cuts at each meeting, rather than the significant cuts speculated by some in the market.

Indian Market: Declining but Not a Buying Opportunity

Goldman Sachs' Marquee market team pointed out that although the Indian market seems to be nearing a "panic peak," caution is still needed before buying. According to their report, since analysts Tim Moe and Sunil's team downgraded the rating last October, the MSCI India Index has underperformed the MSCI Global Index by nearly 20%. Additionally, the Indian market has recorded a net outflow of $12 billion in foreign investment this year.

However, the report emphasizes two key constraining factors. First, the valuation of the Indian stock market is still more than one standard deviation above the historical average. Second, corporate earnings have shown signs of a 7% quarter-on-quarter slowdown. The team concluded that given so many uncertainties, it is difficult to have a genuine investment conviction in the Indian market.

Since the downgrade last October, the MSCI India Index has lagged the MSCI Global Index by nearly 20%. Currently, India's tariffs are as high as 50%, with $12 billion in foreign capital outflow this year, indicating that panic sentiment may have peaked. However, it should be noted that corporate earnings have slowed down by 7% quarter-on-quarter, and valuations remain more than one standard deviation above historical averages. In the face of multiple variables, it is currently difficult to have full confidence.

Japanese Stock Market: Correction Warning After New Highs

For the recently surpassed 3000-point mark of Japan's Topix index, the team has warned of potential correction risks. After a robust earnings season and 16 consecutive weeks of net foreign buying, market optimism is high.

But warning signals have emerged. The report states that the valuation of the Japanese stock market has returned to a level of 15 times earnings, and technical indicators show that the market is in the overbought zone. More importantly, the team cited Bloomberg's data from the past 30 years, indicating that historically, August is usually the weakest month for the Topix index throughout the year

The stable earnings report season and 16 consecutive weeks of foreign capital inflow have become a thing of the past. Is a pullback imminent? Current valuations have risen to 15 times, and technical indicators show that the market has entered the overbought zone.

U.S. Tech Stocks: Is It Time to Consider an Underweight Strategy?

Goldman Sachs' Marquee market team stated that the best question received this week came from a global equity investor with 36 years of market experience: "Can a globally diversified portfolio underweighting U.S. technology, media, and telecommunications (TMT) sectors work?"

The background of this question is that Bloomberg's "Tech Seven Giants" (Mag7) index has outperformed the MSCI Global Index by 220% over the past five years. However, Goldman Sachs' report suggests that if investors agree with the current view that "market breadth is the worst ever" and "the dollar has more room to decline," then this question should provoke thought among everyone.

Federal Reserve Outlook: Gradual Rate Cuts Remain the Baseline Scenario

Despite the U.S. economy being in what Goldman Sachs internally refers to as "stall-speed" conditions, and disappointing employment and manufacturing data, the Goldman Sachs economist team maintains its original judgment on the Federal Reserve's rate-cutting path.

Led by Jan Hatzius, the team expects the Federal Reserve to cut rates by 25 basis points in September, October, and December, and to make two more cuts in 2026, rather than the 50 basis points cut speculated by some market participants in September. Goldman Sachs Vice Chairman and former Dallas Fed President Rob Kaplan explained that the current policy starting point is completely different from when rates were as high as 5.25%-5.50%, when the policy was much more restrictive