Goldman Sachs | Emerging Markets May Have Bottomed

According to an analysis by Goldman Sachs Group Inc, emerging market assets may have bottomed last month and the rally seen in July is likely the start of a more sustained rebound through the second half of this year.

Their key recommendations are:

1. Latin American Equities and Currencies
2. Preference for High Yield Debt relative to emerging market credit, tipping Mexico, Lebanon and Egypt
3. Best local bond markets include Brazil, Peru and Colombia, where yield curves are relatively steeper
4. All South African assets are favoured except equities
5. Recommends avoiding Turkey’s local bond market, citing significant political risks
6. Keeps underweight on Asian equities, while trade tensions with the US remain high

According to Goldman with its analysis going back to 1988, the conclusion drawn are:

1. The median annual drawdown for equities over that period has been around 19% and 9% for foreign exchange.  In that time, a typical sell-off results in a 130 basis point increase in credit spreads and a move wider of 80 basis points in local rates.
2. Typically it’s more painful being early in equity or currency trades.  Credit markets, on the other hand, offer a better trade-off between risk and reward.

Reference:

Bloomberg, 2018-07-26, Gregor Stuart Hunter, “Emerging Markets May Have Bottomed” Goldman Sachs Says