Follow the retail investors! Goldman Sachs: Local retail investors are supporting the current rebound in Asian stock markets.

```

Asian stock markets have performed brilliantly this year, but unexpectedly, the main drivers of this round of gains have not been overseas funds. Goldman Sachs believes that domestic retail investors are increasingly becoming an indispensable force in marginal pricing of the markets.

Take Korea as an example: The market has surged 82% so far this year, while overseas funds have net sold about $62 billion during the same period. Japan exhibits a different pattern—with a significant market upswing, it received about $66 billion in overseas capital inflows. The two countries have opposite foreign capital flows, but what they have in common is: Domestic retail investors continue to enter the market through spot, ETFs, and derivatives, essentially absorbing Korea’s foreign capital sell-off, and also serving as incremental support for Japan's market.

Goldman Sachs data shows that since the end of February, Korean retail investors have accumulated net purchases of about $35 billion in stocks, and local ETFs have seen approximately $35 billion in net inflows during the same period. More importantly, retail participation channels have expanded from spot trading to ETFs, index futures, and single stock futures, forming a more diversified source of funds. This means that Domestic funds are not only taking on the role of ‘buyers’, but are gradually becoming the dominant force driving the market up.

Goldman Sachs maintains a positive view on North Asian markets and believes the continued participation of retail funds will continue to provide support. In terms of specific allocations, the bank is overweight Korea, Japan, and China, and clearly prefers A shares over H shares.

Capital Outflow Does Not Equal Market Bearishness

To many investors, capital outflow often implies a decline in risk appetite, but Goldman Sachs believes that this round of fund flows is not a typical risk-off event.

The report shows that Korea experienced about $62 billion in net outflows of foreign capital this year, but the funds mainly exited a few heavyweight stocks, rather than broad-based selling across the entire market. Meanwhile, Goldman Sachs Prime Services data shows that hedge funds as a whole are still allocating more to Korea and other North Asian markets.

This means that recent overseas capital outflow is more like long-term funds rebalancing based on index weight and asset allocation, rather than systematic bearishness on the region's outlook. Goldman Sachs believes this is also one of the key reasons the market has maintained strength amidst foreign capital reduction.

Leverage Not at Extreme Levels, Sentiment Supported in Multiple Dimensions

As the market continues to rise, investors are starting to worry whether retail enthusiasm has evolved into a bubble. Goldman Sachs admits that margin balances in North Asian markets have reached historical highs, and levered ETF assets have grown significantly—Korean leveraged ETFs alone have asset sizes of about $30 billion.

But Goldman Sachs believes that the current leverage level is still within a controllable range. In terms of the ratio of margin balances to free float market capitalization, the relevant indicators have risen but not yet reached historical extremes, and the region’s strict margin and collateral systems constrain leverage expansion. Thus, leveraged funds may magnify short-term volatility, but are not yet sufficient to pose systemic risk.

Goldman Sachs further finds that in this round, retail participation is not limited to fund inflows but is reflected in multiple dimensions. Over the past year, the number of new accounts in North Asian markets has increased significantly, and turnover rates of small-cap stocks have notably risen. Their retail sentiment indicator shows that participation enthusiasm in Korea is particularly prominent, while Japan and China also remain positive. Growth in new accounts, increased trading activity, and continuous fund inflows together constitute an important support for the current market.

Risk Warning and DisclaimerThe market carries risks, and investment must be cautious. This article does not constitute individual investment advice and has not taken into account any user's specific investment objectives, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article suit their particular circumstances. Investments made accordingly are at your own risk. ```