December 2, 2022

Wall Street debates whether to “buy the dip” in emerging market equities

Two of Wall Street’s biggest banks are divided over their expectations for emerging-market equitiesfollowing a rout that has erased $2.1 trillion in market cap from the MSCI Emerging Markets index, the FT’s Hudson Lockett, Leo Lewis and Jonathan Wheatley report. Morgan Stanley and Goldman Sachs are emblematic of this divide. The former has called the bottom on EM losses and signaled a significant buying opportunity. The latter, on the other hand, sees “no coherent EM story” and remains bearish amid a Chinese slowdown and semiconductor-led pain for emerging Asia, which has powered previous growth.

Morgan Stanley’s chief Asia and emerging markets strategist recently wrote a report forecasting a 14% rise for the MSCI index in H1 2023 and advising clients to take advantage of a new cycle following the longest EM equity bear market on record. The report championed South KoreanTaiwanese and Chinese equities. In a marked departure from the past decades of EM forecasts, the bank said China would lag behind other EMs amid geopolitical uncertainty, Covid restrictions and property market instability. Goldman Sachs’ strategists see an entirely different trajectory for emerging markets. Despite forecasting a 15% rise for the MSCI EM index in 2023, the bank has warned there is no consistent floor on valuations and recommends investors exercise caution across the asset class. 

Goldman’s recommendations also differ, favoring markets with stable commodity prices, higher interest rates, and relative insulation from risks to the Chinese economy. Latin American countries, which have outperformed other emerging regions as commodity exporters ride a wave of soaring prices for food, fuel, and industrial inputs, are prime candidates.

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