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EM assets no longer expensive – will that be enough? – Goldman Sachs

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 31, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Delhi) - Research Team at Goldman Sachs, suggests that EM local rate valuations have come down, but EM local rates are still low in a historical context.

    Key Quotes

    “That is perhaps unsurprising given the fall in oil prices and the exceptionally low level of DM rates. That said, as those impulses fade and US rates start to normalise, EM rates may need to normalise and adjust higher as well. Likewise, EM credit and equity valuations are also not yet markedly ‘cheap’ relative to their own histories. But whereas EM credits have outperformed US HY credits of late, EM equities relative to US equities (or more broadly DM equities) have moved to decadal lows, and in the process have fallen modestly below fair-value.”

    “However, undemanding valuations by themselves are rarely enough to turn asset performance around. Better macro fundamentals, and especially stronger growth, are necessary ingredients for any sustainable rally in EM FX, equities and credit. That said, the fact that valuations are at more supportive levels is a testament to the adjustment that EM assets have achieved so far. And, looking into 2016, it is no longer obvious that EM FX is the weakest link among EM assets, and the risk-reward calculus of relative value opportunities within the EM FX complex should improve.”
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