20180910-高盛-EM_Strategy_Views_New_school_year,_old_EM_volatility_–_we_prefer_equity_for_this_semester_28页_1mb

EM Strategy Views Summary

Core Content

This document outlines the current state of Emerging Market (EM) assets and the firm's investment strategy for the upcoming semester. It emphasizes that EM volatility persists despite the new school year, and that EM assets have not seen a recovery this summer. The analysis suggests that EM underperformance is not solely due to global USD trends, but is increasingly EM-specific, driven by a combination of factors including growth slowdowns, financial condition tightening, and political risks.

Main Viewpoints

• EM Volatility and Underperformance: EM assets have continued to underperform, with volatility remaining high. The "sell in May" adage has been relevant this year, and EM FX has been particularly affected.

• Drivers of EM Weakness:

  • Contagion effects from countries like Turkey and Argentina.
  • Technical factors impacting EM assets.
  • Softening EM growth, with an estimated 1–1.5pp slowdown in 2018 due to global headwinds.
  • Domestic financial conditions tightening further pressuring growth.

• Investment Preference:

  • The firm prefers equity exposure over EM FX and credit.
  • EM equities have less funding vulnerability and are more resilient to FX weakness.
  • EM equities currently trade just 5% above their valuation trough from January 2016, indicating a potential "floor" level.

• Growth Differentials and Earnings:

  • EM growth differentials relative to Developed Markets (DM) are the key to EM FX performance.
  • EM earnings have softened in the late summer but have stabilized in recent months.
  • Latin American equities, especially Brazil and Mexico, show continued EPS resilience despite political uncertainty.

• Credit Vulnerabilities:

  • EM credit is more vulnerable, particularly Frontier Markets, due to fundamental issues.
  • The firm is more cautious about EM sovereign credit compared to equities.

Key Information

• Global Non-US Sell-Off: EM assets are part of a broader non-US sell-off, with EM FX being the hardest hit.
• Contagion and FX Weakness: Contagion effects have worsened EM FX performance, but EM equities have historically bucked this trend.
• Valuation and Earnings: EM equities are at a relative valuation low, with room for recovery. Earnings have softened but are stabilizing.
• Political and External Risks: Political uncertainty and external headwinds (such as trade wars) continue to affect EM growth and asset performance.
• Country-Specific Analysis:
  • Latin America: Brazil and Mexico show strong EPS resilience.
  • Asia: EM equities in Asia are less vulnerable and may benefit from trade war improvements.
  • Frontier Markets: More vulnerable in credit than equity, with poor fundamentals.
  • Turkey and Argentina: Remain in the "cautionary zone" due to high external funding needs and FX pressure.

Relative Value and Outlook

• EM Equities vs. FX and Credit: EM equities are seen as more attractive due to less funding vulnerability, potential stabilization of growth, and a relative valuation low.
• Medium-Term Outlook: The firm maintains a long-term preference for EM equities, expecting growth differentials to improve over the medium-term.
• Near-Term Risks: US growth remains strong, and external headwinds are not expected to ease immediately, which may dampen EM FX performance in the short run.
• Asset Pricing: Markets have already priced in a significant portion of the expected EM growth slowdown, leaving room for a rebound if conditions stabilize.

Conclusion

Despite the continued volatility and underperformance of EM assets, the firm believes equities remain the most attractive investment option for the current semester. EM equities have shown resilience, especially in Latin America, and are currently undervalued relative to DM. The firm is cautious about EM credit and FX due to higher vulnerabilities and ongoing external pressures. The strategy remains to go long EM equities and avoid long positions in EM FX and credit, particularly in the short term.