Goldman Sachs Asset Management (GSAM) has revised its EM outlook, with the view that “concerns about trade and EM contagion are overdone”, claiming US growth will likely moderate, creating a potential comeback in emerging market assets.
- Broadly speaking, GSAM favours equities over credit and credit over rates, predicting economic expansion to continue. EM Equity is still seen as the most attractive asset class.
- US exceptionalism has peaked. They believe the period of diverging growth rates – driven by strong US outperformance – is over, attributing the strong US growth to supporting fiscal policy in the second quarter, which is likely to change.
- Interest rates are likely to remain near current levels into year-end. GSAM predicts the Fed to raise rates twice more in 2018.
- They admit it is a challenging investment environment, but fertile for an EM comeback:
- “Trade tensions, political developments and the potential for a moderation in US growth raise the risk of a temporary pullback in equities later this year. However, we think US growth will remain above trend and economic fundamentals in most EM countries remain healthy, creating fertile ground for a comeback in EM assets.”