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Heron

lines on the record: 23
first: 2023-02-28
most recent: 2023-02-28
sittings or episodes: 1
sources: podcast

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“He said, and on the sovereign side, I would say higher quality emerging markets, sovereigns that have run sensible economic policies like Indonesia or Mexico represent good value as well. Mexico is particularly interesting through its proximity to the United States, remittances, and maybe some kind of pivoting in terms of supply chains away from China towards Latin America.”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“So we're very constructive on emerging market corporate debt, the emerging market corporate index to a large extent the IG rated, but it offers attractive yield pickup over comparable developed market corporate bonds. That's an interesting opportunity. Additionally, that segment gives you access to Asia and growth in Asia, which is something that on the margin we like. And EM companies typically have been able to be quite resilient. They usually have more degrees of freedom when it comes to reducing costs and restructuring. So we like that segment, both in terms of access to Asian growth and valuation and its resilience. Other than that, of course, if you think a little bit longer term, there's an energy transition that needs to take place in emerging markets. There's digitization as well. And there's an increase in kind of number of assets that are coming up and that we like that. We like those longer-term structural stories in emerging markets as well. And that's a great opportunity.”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“So, our investing philosophy is much more bottom up looking for sound businesses trading at attractive valuations in the way we define sound businesses, we want businesses which have strong competitive advantages run by the high quality management teams and someone who treat minority shareholders as the proportionate owners of the business. So usually we tend to find such businesses in the area of consumer financials and information technology sectors within the emerging markets. If I can just give you some flavor of what type of businesses we tend to like. These are the compounding growth stories in the areas of, let's say, retail lending focused commercial banks, or it could be the stock exchanges, it could be e-commerce and the food delivery type of businesses where the penetration levels are still much lower in the emerging markets, or it could be hospital, health insurance type of business.”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“Bilaterally, and it's tended to slow down debt negotiations, for instance, in Zambia. So how does it affect investors and countries, actually? The longer that these kind of restructurings are ongoing and do not get settled, the longer the negotiations take. Obviously, the worse it is for bondholders because it has a negative impact on their recovery. And it's also negative for the countries themselves because they don't have access to markets and they probably are unable to spend on some essentials to your question the longer these negotiations go on, the more negative they impact both on bondholders and borrowers.”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“So you're right, it's been correlated with Ukraine in the sense that there was a wave of countries that started to restructure debt, not repay last year. But I think a lot of the factors that drove countries to that point were actually already in play from much earlier in the sense that these were countries who spent and borrowed beyond their means. They are now in the process with the IMF. That is getting restructured in many cases negotiations are ongoing. negotiations now include quite a large array of different lenders. You've got the multilateral IMF, World Bank, et cetera. You've got bilateral, which are countries lending directly, you've got China in the mix now compared to past rounds of debt restructurings. China today is a far bigger lender to emerging markets than it had been in the past. And that is an interesting factor because China is not necessarily negotiating along with others. They're negotiating by themselves.”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, indeed, the outflows last year were significant, but we've seen quite a significant reversal in the first few months of this year. Usually January is quite a heavy month for emerging market issuance. Typically EM countries and corporates, they raise about 20% of their annual requirement in January. And this year has been no different. In fact, actually, it's been even bigger than. So there is a lot of access now all of a sudden to liquidity in the markets. For the first two months of the year, issuance has been around 50 billion, which is almost half the annual requirement. So the market has opened up, liquidity has been strong. The market differentiates. That's important a little bit along the lines of what we spoke about a little bit earlier, which is it differentiates around solvency and liquidity in emerging market borrowers. So those that haven't done any heavy lifting and haven't improved macro fundamentals find it.”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“30% currently we are trading at about 35 discount to the US market compared to let's say a long-term average of 25 to 30 percent fair valuation compared to its own average but compared to the us and the developed market there is still some room for valuations to improve for the emerging market equities”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“Yes, I can talk about the EM equities valuation as measured by one year forward P multiple, which is the most common way of looking at the valuations. The one year forward P multiple of EM equities is today at about 11.5 times, which is not very different from the long-term average multiple of, let's say, about 11.4 times. And you can say that broadly valuations are fair in line with the long-term averages. However, if you think of EM from a price to book, which is the another valuation metric, then EM equities are trading at about 1.6 times one year forward price to multiple versus long-term average of about 1.8 times. That indicates some discount to its own long-term average. The other way to think of EM versus develop markets and more specifically US. So obviously EM equities have all traded at a discount to US, but the long-term average discount to US is in the range of”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“Healthcare. These are some of the sectors which are going to witness very strong double digit corporate earnings growth in 2023. So yes, the overall earnings may not grow that much in 23, but the quality of earnings for 23 is going to be far better than what we saw in 22. And finally, if you look at geographically, China and India, the two largest emerging markets by market cap and by the weightages, they will see mid-teens kind of corporate earnings growth in 2023, China more specifically about 14% and India is likely to see about 16 to 18% corporate earnings growth in 23. And on the other hand, semiconductor heavy markets like Korea and Taiwan are still going”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“Just as in many aspects of life, statistics can be misleading sometimes. And if you look at the headline EM corporate earnings growth for year of 2023 is likely to be tepid. And in fact, EM earnings might see low to mid single digit decline for the year of 2023. However, it is important to understand the drivers of the earnings growth. And earnings decline is going to be driven much more by sectors such as commodity energy and other global cyclical type of sectors, which had very strong earnings last year. Last year, in the aftermath of Russia invading Ukraine, the commodity prices went up quite a bit and all the commodity producers had very strong cooperative earnings last year. And they are facing a very high base in year of 23. Having said that, the good news is that the structural growth stories in the EM, such as consumer staples, consumer discretionary, financial,”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“Investment in infrastructure, increasing manufacturing competitiveness. And these are the factors which will probably make India's growth less correlated, not completely uncorrelated, but less correlated with the global growth. And that provides some real diversification benefits to the investors. To cut the long story short, in India, we continue to be positive from a medium-term perspective.”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“Somewhat expensive compared to its own long term average and compared to the other emerging markets like China and North Asian markets like Korea, Taiwan. But you also need to realize that India is the only market which is going to help compounded earnings growth of more than 15% for almost a period of four to five years starting 2021. And we are in the midst of this multi-year corporate earnings recovery cycle. So while it's tough to say what might happen to the markets in the very near term, we are far more positive on India from a long-term structural growth perspective. And there are very few large economies in the world where you can say that investors have visibility of six to seven percent real GDP growth, not only for one or two years, but almost for the next decade or so. And India is one of them. More importantly, India's growth is also driven much more by domestic consumption.”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“Why India did very well was that the Indian government used the opportunity of COVID to push through some important structural reforms, more specifically the labor law reforms, the incentivization of the manufacturing sector through the production-linked incentive scheme, and also some big ticket privatization, such as that of Air India, the national carrier, which was being talked about for a long time, but it got finally consumed last year. So there were some structural reforms and there is a cyclical recovery, which were more India-specific factors. And obviously the fact that Korea and Taiwan were impacted by the semiconductor drawdown and China had its own issues that also helped India in a relative terms. And it's anybody's call how the markets would do in the near term. Valuations of India after two years of very strong performance did appear to be.”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it's interesting that people think India and China are going to complement or if one works, the other will not work or something like that. The fact that China reopening is going to be positive for the global economic growth, obviously India is going to benefit because of that as well. Now, if you think about why Indian equity has significantly outperformed Chinese equities in the broader emerging market equities in the prior two years, which is 2021 and 22, and specifically India had more than 50% of cumulative outperformance over a two-year period compared to MSCI emerging market or MSCI China, there were few India specific factors. First and foremost, the recovery of economy coming out of COVID from the second half of 2021 was very strong. And last year, India had more than 7% real GDP growth. The second also very important reason.”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“expansion like we saw in 2009 post financial crisis where growth rates went double Numbers. We're really talking about whether Chinese growth is going to be 5% or 5.5% for the year, or that's the range, the confidence interval. So I think it's positive China reopening is positive combined with a number of other positive things that China has done, as Heron mentioned earlier. But I would say investors should view it as something that is good at the margin. It is not something that will by itself drive returns in emerging markets going forward.”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“So China reopening and reopening more quickly is generally considered to be a positive thing because it's positive for economic growth in China. And if China grows more, there are very clear channels through which that has a positive impact at the margin on emerging markets. So they import more. So that's good for exporters, probably better for Asia, good for Latin America. There's another channel, which is services, the biggest services actually tourism. So people traveling, also good for emerging markets, good for Asia. And then the third channel would be higher commodity demand and higher commodity prices. So that's good for a large number of emerging market countries that export commodities. So the obvious ones here are Brazil, South Africa, Chile, Peru, et cetera. So at the margin, this is positive. I would just calibrate it a little bit. We're talking about growth at the margin. So we're not talking about a dramatic economic”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“Emerging markets given fiscal and monetary policy responses. But I wouldn't expect this to change dramatically. So I don't think there's a dramatic kind of loosening of policy. And then the more structural point, and that pertains to the dollar and how a stronger dollar links into kind of emerging market vulnerabilities, absolutely a stronger dollar on average has not been good for emerging markets. But it's really worth pointing out that for long periods of time now, ever since the 2008 crisis, actually emerging markets have done a number of things to make themselves more resilient. First of all, they've moved away from having formal pegs to the dollar, not in all instances, but in a lot of...”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so they've responded, I think here also it's very interesting to break it down between the long term and the short-term response. On the shorter term response on monetary policy, EM Central Banks started hiking before developed market central banks hiked, and they probably reached a peak in rates at some point in the second half of last year. There are obviously exceptions, China and Turkey are exceptions, but they're very idiosyncratic. Number one, number two, on the fiscal side, ever since COVID, so now for the last almost three years, EM countries have actually been on a fiscal tightening path. And that is overspent that took place back in 2020. That needs to come out of the system. And actually, those countries that haven't tightened their fiscal are in fact the ones that are the most vulnerable going forward. So they were very incentivized to tighten fiscal, and that's what they've done. So in a cyclical sense, liquidity conditions have probably reached that type for a”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“Just to point to the obvious, which is that when we look at EM debt, the opportunity set is actually very heterogeneous. So there's corporates, IG, high yield. And if you look at the kind of deterioration and sovereign debt dynamics as a response to higher rates, it's actually not been that dramatic. It's been relatively modest. Interest payments as a percentage of GDP have increased by only 0.3% since 2019. So why is that? Well, because a lot of these countries or corporates also fund themselves in local currency. And here it's really real rates that matter. And they've been negative. So the backdrop is much better looking forward than it was over the last year.”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“States is a little bit stronger. So the margin, that's a good reason for why rates are where they are and likely to stay where they are. The second point is just worth thinking about is when we look at emerging markets, of course, not every country is affected by higher rates in the same way. So some are much more resilient, some corporates are much more resilient. And it's really figuring out the sensitivity that these countries have, either because of their debt gearing or because of their lack of liquidity that we can very quickly see which countries are likely to perform better than others in this particular environment. So although the market has rallied, it's been supported at the beginning of the year, we've been actually quite differentiated in the way we look at EM. And there are clearly countries, let's say Mexico, that are much more resilient than others, for example, Ghana, Sri Lanka, Zambia, etc. And the final point very quickly.”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“Typically, most EM spreads and countries are driven by a lot of idiosyncratic factors. But of course, you've just mentioned two or three of the most important exogenous drivers behind emerging market performance, which is the strength of the dollar, global liquidity and global growth. And as we saw last year, when there was a deterioration from the point of view of emerging markets, when rates were going up, and people worried about growth, when inflation was high and people feared that central banks had to continue to hike EM didn't perform very well. That was last year's story. I think when you look at it today, a couple of things are different. The first one is just to pause a little bit and think about why our US rates where they are, are they going much higher or are there higher for longer? I think that typically has a negative impact on emerging markets. But this year interest rates are rising not because of global inflationary fears, but because economic activity in the United States.”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“The good news we are seeing silver linings on both of these issues, China, as we all know, has abundant zero COVID strategy and has opened up the economy starting December. Pace of reopening is far better and has been a surprise to almost all the investors. Along with that, there have also been significant policy pivot on the real estate sector as well as clear signal that private sector is very much welcome in China. On the semiconductor side of it also, we are seeing the early indicators that the cycle may be close to bottoming out. We are no longer seeing significant decline in the end market applications of semiconductors such as smartphones or computers or the other communication products. The fact that China and the semiconductor cycle both are turning around make us much more positive on the EM equities for the next year.”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT
“You think about last year, other than the macro factors such as US fed, aggressively hiking rates and the resultant strength of the US dollar, you had two EM specific issues which were impacting the EM equities market. The first was the China economic slowdown, which was function of the zero COVID strategy being pursued throughout the 2022 and also the default by the Chinese real estate companies and general sense that China is going to be less friendly to private entrepreneurship going forward. The second reason impacting the EM equities last year was the semiconductor cycle coming out of COVID. There was significant pull-in of demand across the value chain of semiconductors and starting around second half of last year. We are witnessing significant destocking of the inventories of the semiconductors. So these were the two EM specific reasons for, let's say, the underperformance of the EM equities last year.”
2023-02-28 · Goldman Sachs Exchanges · Is it time to invest in emerging markets? · IDENTIFIED FROM THE TRANSCRIPT