高盛-新兴市场-股票策略-回到低点，关于股权集中出售的5个问题-20181011-27页_1mb

EM Strategy Views Summary

Core Content Overview

This document provides an analysis of Emerging Markets (EM) equity performance and outlook in the context of recent drawdowns, focusing on macroeconomic fundamentals, valuation, portfolio construction, and the long-term risk-adjusted returns of EM assets.

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Main Questions and Insights

1. What is the latest pulse-check on EM equity after the recent drawdown?

• Fundamentals: EM earnings have slowed but are still growing, with local currency EPS growth being more resilient than USD-denominated.
• Valuation: EM equities trade at a significant discount to the S&P 500 (35% discount), but remain above the 2016 trough level.
• Positioning: The sell-off is not driven by excessive positioning, but by a reassessment of risk appetite.
• Catalysts: No clear upside catalyst is present, though China's fiscal policy easing could provide support.

2. How can we gauge the path ahead for EM growth relative to China and US rates?

• Growth Drivers: EM growth is primarily influenced by macroeconomic factors, with China's GDP performance having a strong correlation with EM growth.
• US Rate Impact: A 40bp rise in US 10-year rates could lead to a 45bp further slowdown in EM growth over 6 months.
• Bull Case: EM growth is expected to stabilize and improve in 2019 due to mean-reversion, early cycle dynamics, and DM growth pulling EM up.
• Historical Context: EM growth slowdowns are common and typically do not lead to recessions, with a base case forecast of rising EM growth.

3. Is the recent EM sell-off fundamentally or technically driven?

• Fundamental Risk: High cross-sectional correlation between EM equities and FX suggests country risk (macroeconomic fundamentals) is a key driver.
• FX and Earnings: The recent sell-off is "well ordered" across both equity and FX, indicating a more fundamental shift rather than technical flows.
• Inflows: Despite "trapped" inflows reported in surveys, exchange data shows that inflows from 2016-17 have been largely reversed.

4. Portfolio Construction: Beta or Value?

• Value Performance: Value factors have started to outperform, but "growth momentum" strategies have been more effective in EM equities.
• Tactical Preference: Growth momentum is preferred as a consistent alpha generator, especially in the context of macroeconomic factors.
• Market Rotation: Brazil, Korea, and Mexico are highlighted as potential rotation candidates, with a preference for banks in Mexico and South Africa.
• Valuation and Momentum: Markets like Indonesia and Malaysia are attractive based on valuation and growth momentum, but are sensitive to US rates.

5. Is it worth investing in EM? The Sharpe Ratio Perspective

• Long-run Sharpe Ratios: EM Sharpe ratios have underperformed compared to US assets in recent years, but this is not unique to EM.
• Historical Context: Since the 1980s, EM Sharpe ratios have been similar to the S&P 500, and EM outperformed during the GFC.
• Risk-adjusted Returns: A potential US recession does not necessarily mean EM will underperform, as EM has shown better return profiles during downturns.
• Credit and Bonds: EM credit and local bonds have similar Sharpe ratios to G-10 bonds, though US credit has historically outperformed.

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Key Information

• EM Earnings Trends: EM EPS growth has slowed from 1.7% in 1Q 2018 to 0.2% in 3Q 2018, with local currency earnings more resilient than USD.
• Valuation Metrics: MSCI EM is at a 35% discount to the S&P 500, the lowest since 2004.
• Country Risk: The recent sell-off is driven by macroeconomic fundamentals, with a strong correlation between EM equities and FX.
• Portfolio Strategy: "Growth momentum" strategies are favored over value for tactical positioning in EM equities.
• Risk Factors: EM is sensitive to US interest rates and China's fiscal policy, with potential for stabilization in 2019.
• Long-run Outlook: EM has shown better risk-adjusted returns during periods of US economic stress, suggesting it may still be a viable long-term investment.

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Conclusion

The EM equity sell-off reflects a combination of slowing growth, valuation re-rating, and macroeconomic uncertainty. While the fundamentals remain positive, the lack of clear catalysts and the impact of US rates and China's economic trajectory pose challenges. Investors are advised to consider a mix of strategies, focusing on growth momentum and rotation opportunities, while also evaluating the long-term Sharpe ratio potential of EM assets.