What's Next For Emerging Markets?
At a Glance
The desk interprets Goldman Sachs' commentary on emerging markets, emphasizing the early signs of stabilization noted by Kevin Daly. Amid a recovery signal from the lows of last year's financial performance, the commentary suggests key factors previously hindering growth are now reversing, particularly in the CEEMEA region. This perspective is underpinned by the acknowledgment of Turkey's long recovery path, yet positive long-term growth remains in sight, affirming the desk's cautious optimism. We note that this optimism reflects a possible turning point for EM currencies, particularly as macroeconomic conditions begin to improve.
Key Takeaways
- 01Emerging markets show early stabilization signs amid economic recovery.
- 02Turkey's growth outlook is improving, despite a slow recovery process.
- 03The long-term growth outlook for CEEMEA remains favorable.
- 04Macroeconomic conditions are shifting positively, supporting EM currencies.
Full Analysis
What the desk is arguing
The desk contends that emerging market economies are poised for recovery, as highlighted in the latest insights from Goldman Sachs Research. Per the full note, Daly points out early signs of stabilization in EM economies following the challenges faced last year, particularly around September to October 2022.
Supporting evidence includes a general rebound in economic activity, with Ankara experiencing a gradual recovery from recent turmoil. For example, Turkey's economic performance is expected to improve, albeit slowly, marking a shift from the worst periods of growth seen last year.
Where it sits in our coverage
As there is no internal coverage data available regarding specific currency pairs, this section has been omitted.
How other firms see it
Currently, there is no internal coverage data available that provides insights into firm views on related currency pairs, leaving this section empty.
What the calendar says
There are no upcoming high-impact events for emerging markets in the next 30 days that would influence this outlook.
Market Implications
Traders should watch for trends in EM currencies, particularly against developed currencies, as stabilization signals become clearer. Pay attention to any emerging data releases from Turkey, which may provide crucial insights into the recovery trajectory.
From the original
Emerging market economies are showing early signs of stabilization, according to Kevin Daly of Goldman Sachs Research, and a number of the factors that contributed to the weakness of EM economies last year have now been reversed. "There has already been the beginnings of a recove
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The desk interprets Goldman Sachs' commentary on potential 'peak momentum' in global growth, suggesting a shift in market dynamics that could lead to modest equity returns. Per the full note, while growth might be slowing, Tim Moe identifies enduring investment opportunities in Asia, especially in China. This is particularly relevant for FX traders focused on Asian currencies, as trends in equities often correlate with currency fluctuations. Notably, the implied caution reflects broader themes surrounding market liquidity and geopolitical risks that could impact currency valuations.
Macro Freestyle – Can emerging markets weather the oil shock?
The desk underscores the resilience of emerging markets (EM) in the face of the current oil shock, as detailed by Standard Chartered's latest analysis. This resilience is attributed to varying economic fundamentals and effective policy responses across different regions. Per the full note from Standard Chartered, EM economies are generally better positioned due to their ability to manage inflation and stabilize currency values amidst rising oil prices, which are projected to impact both FX flows and credit spreads significantly.
Growth, Politics and Shareholder Activism: European Equities in Focus
The desk is cautiously optimistic about European equities, as they appear to be better positioned than emerging market stocks while still lagging behind U.S. counterparts. Per the full note from Goldman Sachs, European companies may deliver earnings growth around 10% for 2018, a figure that could improve if political uncertainties ease. This suggests potential for upward price adjustments in equities. Additionally, with no significant events on the calendar in the near term, the market may remain receptive to shifts in sentiment, making it critical to monitor political developments, particularly in the U.K., Germany, and France.
EM Fixed Income: Getting fully back on the EM horse
The desk argues that the emerging market (EM) fixed income sector is poised for a robust recovery, driven by recent macroeconomic developments and a favorable shift in investor sentiment. Per the full note [source], the recent stabilization of global interest rates and a more dovish stance from major central banks are key factors supporting this outlook. The desk highlights that EM fixed income yields have become increasingly attractive, with spreads tightening significantly in recent weeks. This positive momentum is reflected in the overall market positioning, which has shifted towards a more bullish stance on EM assets.
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