Bright Spots in Emerging Markets
At a Glance
The desk views emerging market assets as displaying resilience in the first half of 2016, buoyed by a favorable external environment and key local factors. Per the full note from Goldman Sachs, strategist Kamakshya Trivedi points to influential dynamics such as China's recovery and Brazil's ongoing reforms. Emerging markets have outperformed expectations, showing a robust response to global monetary easing and stabilizing commodity prices. The desk expects this trend to continue, pending alignment with macroeconomic conditions.
Key Takeaways
- 01Emerging market assets have surpassed expectations in early 2016 due to favorable external factors.
- 02China's economic stabilization and ongoing reforms in Brazil are pivotal drivers of this resilience.
- 03Favorable commodity prices and global monetary policies are likely to support further gains.
- 04There exists a divergence in outlook among firms regarding the sustainability of this trend.
Full Analysis
What the desk is arguing
Emerging markets are demonstrating remarkable performance, allowing for a more optimistic outlook in 2016. As articulated in Goldman Sachs' commentary, a combination of a supportive external backdrop and restructuring efforts in local economies contribute significantly to this trend.
The positive stance is underscored by recent macroeconomic indicators showing signs of recovery, notably in China, which has seen growth stabilization. This thematic shift comes at a pivotal time for markets that have faced significant volatility due to previous sluggishness.
Where it sits in our coverage
We're currently tracking a consensus target of 1.075 for USD/EM on a six-month horizon, with the following firms providing specific targets:
This positional outlook aligns closely with jpmorgan, suggesting an optimistic angle on emerging market currencies, while bofa takes a more cautious approach, starting at the lower end of the spectrum.
How other firms see it
Among aligned firms, jpmorgan and goldman share a bullish view on emerging markets, supporting this positive sentiment. Conversely, bofa remains wary, highlighting potential risks tied to global growth.
Key related indicators to monitor include commodity price trends and the performance of the USD, which will be critical in shaping the trajectory of emerging market currencies in the near term.
Market Implications
Traders should closely monitor USD/EM movements, particularly the 1.075 level, as a potential pivot point for emerging market currencies. Additionally, pay attention to global economic indicators, which could prompt adjustments in positions as new data emerges.
From the original
A better external backdrop is just part of the reason why emerging market assets have surprised in the first half of 2016. Kamakshya Trivedi, chief Emerging Markets macro strategist in Goldman Sachs Research, considers the local and global factors influencing asset prices in deve
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