One World Trade Center is reflected on the Goldman Sachs Group Inc. headquarters building in New York, U.S. (Photographer: Mark Kauzlarich/Bloomberg)

Goldman Asset Says Buy Emerging Markets as Volatility Normal

(Bloomberg) -- Goldman Sachs Asset Management says the volatility saturating global stock markets this year isn’t unusual and provides a window to buy selective emerging-market assets.

“This is the return to normality,” James Ashley, head of international market strategy, said at a briefing in Singapore. “We think emerging markets are being oversold. We would see this as an attractive entry opportunity.”

The money manager isn’t alone in saying it may be time to buy. Aberdeen Standard Investments purchased U.S. stocks earlier this month, while Allianz Global Investors is snapping up emerging-market debt and selective U.K., Chinese and European equities. Northcape Capital Ltd. also sees buying opportunities.

Goldman Asset Says Buy Emerging Markets as Volatility Normal

A challenging year for financial markets took a turn for the worse in November as volatility erupted from New York to Athens. While global equities have recouped some of their losses in recent days, markets such as China, Hong Kong and South Korea have all dropped into bear territory due to concern over slowing economic growth, sliding oil prices and a U.S.-China trade war.

Goldman Asset is “modestly overweight” China and favors Indian and Indonesian equities, London-based Ashley said.

“The key message for 2019 is we prefer equities to credit, we prefer credit to developed-market fixed income, and we prefer emerging markets to developed markets,” he said.

Others are less optimistic. JPMorgan Chase & Co.’s multi-asset team has boosted cash levels and Treasury holdings at the expense of shares to reduce risk.

This isn’t the time to go defensive, Goldman Asset’s Ashley said. “The environment over the next couple of years will be more challenging than it has been in the recent past -- lower returns, higher risk -- but that doesn’t mean it’s the time to go into cash.’’

Here are some of Ashley’s other investment views:

  • Goldman Asset is underweight Treasuries, saying an increase in 10-year yields to somewhere around 3.5% wouldn’t be unreasonable before the end of 2019
  • U.S. break-even inflation rates look “a little bit too low” given the economy is still strong with a positive output gap and there are “pipeline inflationary pressures”
  • Yuan is likely to gradually weaken past 7 per dollar due to slowing Chinese growth
  • U.S. dollar strength will wane next year, allowing emerging-market currencies such as the Indonesian rupiah, Argentine peso and Polish zloty to outperform

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