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Goldman Rethinks Emerging Markets Strategy Due to China Lesson

Kamakshya Trivedi, head of global currencies, interest rates, and Emerging Markets Strategy at Goldman Sachs Group, said that he had learned two lessons from one of the largest and most common unsuccessful forecasts of this year, which envisaged a rapid recovery of China’s economic system after the end of the country’s policy of severe restrictions on social life processes caused by the fight against coronavirus.

Goldman Rethinks Emerging Markets Strategy Due to China Lesson

At the beginning of 2023, the specified financial institution was among those Wall Street banks that believed that this year would be financially successful and associated optimistic expectations with this period. Their sentiments were largely focused on the economic recovery in China after several years of a zero-tolerance coronavirus policy limiting business activity. Strategists, including Kinger Lau, predicted that the Asian country’s stock market would show growth of 15% this year. But the reality turned out to be much less optimistic.

It is worth noting that the current year actually started very well for the Chinese economic system, but the recovery wave turned out to be weak. The expected revival became something like a bright flash, which gave hope for the beginning of a period of prosperity, after which it disappeared into the fog of a complex reality, where the number of problems does not give possibility to simple solutions that bring gigantic results.

The share price of Chinese companies showed a decline of 15%. This indicator is directly opposite to the above-mentioned growth expectations. At the same time, excellent results were recorded in emerging markets. This year, the Chinese economy has symbolically become a sea rock against which boats of hope have crashed.

Kamakshya Trivedi, during a conversation with media representatives, said that by the end of 2023, he had recorded the desire of analytical perception for a different attitude towards EM and EM ex-China. He noted that Chinese assets have not been correlated with many other assets of emerging countries for some time. According to him, this was relevant concerning equity and fixed-income assets. This is the first lesson that Kamakshya Trivedi has learned.

The second lesson concerns the resilience of emerging markets in general, even against the backdrop of the Fed’s policy of aggressively raising rates, a strong dollar, and slowing economic development in China. Kamakshya Trivedi stated that EM’s assets have shown steady results.

Emerging market securities have grown by 16% this year. In this case, the result of China is not taken into account. The MSCI benchmark emerging markets index, which includes the securities of the specified Asian country, accounting for almost 30% of the total, rose 4.4%.

Kamakshya Trivedi said that from the point of view of emerging markets, the biggest disappointment was the slowdown in the Chinese economy, which continues to this day. He noted that this circumstance has become a deterrent for the assets of emerging countries.

According to Kamakshya Trivedi, political actions have become the reason for the resilience of emerging markets. The central banks of the respective countries raised interest rates in advance, aggressively and proactively to cope with the inflationary shock. According to him, these financial regulators were ahead of the game, and these efforts helped them. Kamakshya Trivedi stated that this macroeconomic combination is much better than previous strategies. In his opinion, next year the overall positive return on assets of emerging countries will be recorded.

As we have reported earlier, Goldman Sachs Favors Options to Counter Intensive Rate-Cut Pricing.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.