Goldman Sachs predicts end to emerging-market blues

AFTER three years of disappointment, emerging markets are about to turn the corner, Goldman Sachs Group predicts.

As growth picks up and weaker currencies help alleviate economic imbalances, “2016 could be the year emerging-market assets put in a bottom and start to find their feet”, strategists led by Kamakshya Trivedi wrote in a note this week. “There is the prospect of improved growth and better returns, even if it is not a rerun of the roaring 2000s.”

Some countries are better positioned than others.

Although Colombia, South Africa, Turkey and Malaysia need to tackle their currentaccount imbalances, Russia, India and Poland are among nations that have improved enough for their assets to rally, according to Goldman Sachs. Emerging-market currencies, which have tumbled this year, are no longer “expensive”.

The firm is joining a handful of investors who have become more upbeat about developing economies after their currencies fell to record lows and stocks trailed developed-market peers by 51 percentage points over the past three years.

Franklin Templeton has said the sell-off has opened up buying opportunities not seen for decades.

Goldman Sachs predicted that developing countries’s economies will grow 4.9% next year, from an estimated 4.4% in 2015, marking the first acceleration since 2010. The improvement can only help boost investor confidence given the current “widespread bearishness”, the analysts wrote. “We’d part ways with the extreme pessimism we sometimes encounter about the long-term prospects,” they said.

Goldman Sachs said the biggest risk is a “significant depreciation” of the yuan. A stronger dollar and slower growth in China may prompt policymakers to allow the currency to fall with a spillover effect rippling through emerging markets, the report said.

“In our view, the fallout from such a shift is the primary risk,” the analysts said.

South Africa and Chile are among countries more exposed to a further decline in metal prices as the Chinese economy slows, while stability in oil may help exporters such as Russia and Mexico, the report said. — Bloomberg