Emerging markets have a lot going for them right now. Putting aside the worrying rise in Covid-19 cases, the positive narrative for investors in developing economies remains intact. China’s economy probably returned to growth in the second quarter, putting the yuan — the current barometer of global risk sentiment — on course for further gains following its biggest weekly jump since January 2019. Goldman Sachs Group Inc. revised its 12-month forecast of the currency to 6.7 from 7, expecting it to benefit from a weaker dollar.
“China’s domestic fundamentals look increasingly solid,” Goldman strategists, including New York-based Zach Pandl, wrote in a note. “Growth remains sturdy, the virus is reportedly under control, the trade surplus has expanded, and both equity markets and interest rates are moving higher.”
That’s likely to add further momentum to this month’s rally in emerging-market currencies, with the 50-day moving average on an MSCI Inc. gauge now higher than its 100-day counterpart. Developing-nation currencies are cheap and will probably play catch-up with other risky assets as the foreign share of local debt holdings has shrunk to a record low, according to Deutsche Bank AG.
In equities, opportunities for stock selection “still look very good,” even after an MSCI measure climbed to an almost five-month high last week, said Paul Quinsee, J.P. Morgan Asset Management’s New York-based global head of equities.