Stocks in Asia outside Japan look set to extend their rebound from the depths of the coronavirus-fueled selloff as earnings rise and the dollar weakens in the year ahead, according to Goldman Sachs Group Inc.

The investment bank raised its target for the MSCI AC Asia Pacific ex-Japan Index to 590 from 510 previously, according to analysts including Timothy Moe, chief Asia-Pacific equity strategist and co-head of macro research. The new level implies a gain of more than 4% from the current value.

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.

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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.