Emerging Market Stocks Differentiate from US Markets... Goldman Sachs Buys Emerging Market Stocks

[Photo by AP Yonhap News]

[Asia Economy Reporter Park Byung-hee] As the U.S. central bank, the Federal Reserve (Fed), is expected to begin tightening monetary policy earlier than anticipated, causing the S&P 500 index to plunge sharply, the MSCI Emerging Markets Index has risen by 3.6% over the past month.

Bloomberg reported on the 23rd (local time) that some major global funds, including Goldman Sachs Asset Management and BNP Paribas Asset Management, are turning their attention to emerging markets. This is because many emerging countries had already preemptively raised their benchmark interest rates last year, reducing the need for rate hikes this year, thereby creating a more favorable investment environment compared to developed countries.

Daniel Morris, Chief Investment Strategist at BNP Paribas Asset Management, said, "We began increasing our allocation to emerging market equities starting November last year." He explained, "While the Fed may raise benchmark interest rates much more than the market currently expects this year, many emerging market central banks have already raised rates significantly, so the short-term environment for emerging market equities could be more favorable."

Goldman Sachs Asset Management also predicted in a report that emerging market economies could show stronger growth trends this year. Goldman Sachs noted that the growth rate gap between developed and emerging countries has narrowed to the lowest level in at least 20 years and expects this growth rate gap to begin widening again this year.

The fact that the price-to-earnings ratio (PER) is undervalued is also a positive factor for emerging market equities.

According to Bloomberg data, the current price-to-earnings ratio of the MSCI Emerging Markets Index, based on the next 12 months' earnings estimates, is about 12.4 times. This is approximately 40% lower than the S&P 500 index's PER of around 20 times, representing the largest gap since 2007.

Although optimistic views on emerging market equities are spreading, opinions on the Chinese stock market are mixed. BNP Paribas takes a cautious stance on investing in China due to regulatory risks posed by Chinese authorities.

Investment strategist Morris pointed out, "I see opportunities in the Chinese stock market, but how large those opportunities will be is questionable." He added, "There is significant risk because it is unclear how long the regulations will last and in what form they will be implemented. There is also a lack of clarity on how President Xi Jinping's emphasis on common prosperity will be concretely realized."

On the other hand, Pictet Asset Management views investment in China as an opportunity.

In a report, Pictet Asset Management stated, "The Chinese stock market has been quite underperforming compared to other emerging markets, so we expect investor interest to increase." They also mentioned recent cuts in interest rates and reserve requirements by China, indicating early signs of monetary easing. However, Pictet added that choosing which sectors to invest in is important.