Daily Management Review

Goldman bets on emerging-market stocks


03/15/2018


Goldman Sachs Asset Management considers shares of developing countries the best option for investment after the February fall in the value of assets, writes Bloomberg.



Eva K.
Eva K.
Unlike previous cases of market correction, when developing countries watched a large outflow of capital, customers invested more money in the riskiest assets this time, said International GSAM CEO Sheila Patel. This was a sensible strategy last month, when the return on investment in EM shares was 3.1% compared to 2.5% for US stocks.

The division of Goldman Sachs Group Inc., which manages assets of more than $ 1 trillion, chimed with GMO, Voya Investment Management and JPMorgan Chase & Co. They also note the benefits of developing markets for their customers after the main stock index rose by more than 75% since early 2016. Bulls argue that support for EM shares is provided by the growth of companies' profits, historically low valuations of assets and lower volatility compared with the shares of developed countries.

According to Patel, GSAM is particularly positive about the shares of Indian companies in the health sector, the Mexican consumer sector shares, as well as the Argentine debt. She expects the Indian government to increase health care spending under Prime Minister Narendra Modi. And although political risks cannot be ignored, investors' pessimism towards Mexico and Argentina is exaggerated, she noted.

GSAM also looks closely at the markets of Saudi Arabia. "I think that Saudi Arabia is certainly another place that, given the likely inclusion in MSCI and, again, a very favorable demographic situation, attracts a lot of attention of our customers who want to understand what opportunities can exist for this market" - said Patel.

Even four increases in the rate of the US Federal Reserve are unlikely to weaken investors' appetite for risk. The growth of shares in emerging markets followed 19 of the last 22 increases in the Fed’s rate. In all cases, except for seven, rally EM shares occurred within a week after the increase.

Everything boils down to fundamental economic indicators. The degree to which developing economies outperform developed in terms of growth rates is increasing. This and the high valuation of the companies' profits should support the assets of EM, regardless of how the rate of the Federal Reserve changes, says Francois Savary, investment director of Prime Partners SA in Geneva.

source: bloomberg.com






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