Emerging Market Currencies to ‘Bounce Back’ in 2019, Says Goldman Sachs

Goldman Sachs predicts that emerging markets currencies would ‘bounce back’ in 2019.

All through 2018, emerging market currencies have experienced profound pressure, and based on the strength of the U.S dollar, which is trading up to about 5 percent against six prominent currencies this year. However, it was stated on Tuesday by the CEO of EMEA and Global Head of Fixed Income at Goldman Sachs Asset Management that while the dollar has had a good run all year round, it is very likely that financial markets have “seen the best of it.”

Goldman: US growth will slow next year, but fundamentals remain strong.

It is the expectation of Goldman Sachs Asset Management that the economic situations in emerging markets would get better in the course of the next few months, consequently creating an opportunity for the growth in value of regional stocks as well as currencies.

Attractive return potential for EM assets

A report which was made public last week featured a forecast of a “renewed outperformance” by analysts at Goldman Sachs Asset Management. According to the analysts, emerging markets would outperform developed markets as balance is restored to global growth.

The analysts, in their investment outlook for the coming year, went further to express their confidence in the return potential of emerging market assets, especially in currencies and equities, which they expect to be caused by improving growth.

Additionally, they said that emerging markets are currently trading at a seemingly high discount of about 25 percent to developed market equities, and at the same time, providing a much favorable expected earnings growth.

Traders and investors are very concerned about the current economic condition, as there is a chance for potential decline in economic activity. And owed to the instability in global stocks, and the plunging of stocks prior to the U.S. Federal Reserve’s final two-day meeting of the calendar year.

Many believe that the U.S. central bank would deal the fourth interest rate hike of the year on Wednesday, in spite of the speculation the Fed may resolve to pause its tightening cycle in the face of potential economic instability in the world’s largest economy.

On Monday, President Donald Trump alongside his chief trade advisor called out the Fed for its monetary tightening. The discussion seemed to increase the worries of investors before the long-awaited central bank’s meeting.

China stands out as the ‘biggest risk’ to EM assets

Analysts at Goldman Sachs Asset Management say that in spite of their huge success and increased sales in equity markets, they still top the charts as the biggest risk in the coming year, 2019.

As compared to the previous year, asset prices as well as market expectations have experienced a major shift, providing better deals and making it more likely for positive outcomes.

Goldman Sachs acknowledged the intrinsic role of the Chinese economic performance in the next few months to their investment outlook for the coming year, and referred to it as the biggest risk.

“However, we think the period of the highest intensity of growth deceleration is behind us, meaning there is less near-term pressure for the rest of the EM countries to offset.”