Research Team at Goldman Sachs, notes that the first three weeks of January saw a broad-based sell-off in EM assets, which were down 3.4% against the USD and 2.4% in TWI terms at their trough. Key Quotes “This followed declines of 14% and 7% versus the USD and in TWI terms respectively over 2015. However, over the past fortnight, most of the EM FX losses (versus the USD) have been pared back with the local rebound in oil prices, and EM FX is roughly flat year to date, even as the selloff in global risky assets has continued. Two global macro drivers appear to have been behind the sell-off and subsequent reprieve in EM FX and asset markets more broadly: Uncertainty surrounding China’s ‘bumpy deceleration’ and the CNY path: The surprise devaluation of the CNY in the first week of January this year was a catalyst for the initial sell-off in EM FX, even beyond Non-Japan Asia. In addition, Chinese equity markets sold off sharply in the first few trading sessions of 2016, unsettling markets across the globe and rekindling fears of a ‘hard landing’ in China. Our market-based China growth risk factor has declined precipitously, and is now pricing in sub-2% growth in China, significantly below our Current Activity Index (CAI), which is currently tracking between 4% and 5% growth and suggests a shallower sequential slowdown. Most recently, the trend towards more stable CNY fixes has anchored the off-shore Renminbi market as well and has contributed to the rebound in EM FX. Volatility in oil prices: Oil prices continued to grind lower coming into the year, finally breaching the $30/bbl mark early in mid-January. Concerns that a global growth slowdown was behind the further decline in oil prices exacerbated market pressures, damaging risk assets, including EM FX. While we do not share this view and think that oil oversupply (rather than weaker demand) was in the driving seat, we do expect to see a highly volatile and trendless market until the oversupply is corrected. The last two weeks have seen a brief recovery in oil prices, and this has helped to stabilise EM currencies more broadly.” For more information, read our latest forex news.