Selectively constructive on EM assets – Goldman Sachs

Ian Tomb, Research Analyst at Goldman Sachs, explains that the broader global environment supports a selectively constructive view on EM assets. 

Key Quotes

“Specifically:

• As the market continues to scrutinise the gap between ‘soft’ and ‘hard’ data, it is worth noting that some of the most encouraging global ‘hard’ data have been global trade flows, to which EM is highly exposed.
• While a number of key DMs feature near potential growth, many (ex-China) EMs are growing below potential and, conditional on a supportive environment, appear primed for a continued growth recovery.  In a similar vein, our portfolio strategy team has highlighted the possibility that, relative to DM, EM growth and equity performance may have hit an inflection point – with the potential for EM outperformance ahead.
• While fundamental issues in the Chinese economy are a longer-run concern for EM, a run of strong March data, including activity data, together with incentives for maintaining macroeconomic stability before the 19th Party Congress in the autumn, have helped allay concerns of imminent China downside risk.”

“If global ‘hard’ data improve in 2017Q2, and the VIX index stays anchored, EM could be somewhat insulated from a moderate and controlled US-specific shock.  Moreover, we think an encouraging EM growth story would likely support EM credit and equity and, in FX, the high carry on offer in ‘good carry’ candidates in EM currencies can be effectively expressed via relative trades.”