At the beginning of the year, Goldman was among the chorus of Wall Street banks pinning their hopes for a bright 2023 in part on recovery in China, with strategists including Kinger Lau predicting a 15% rally in the Chinese stock market. The expectation was that a bounce in the world’s second-largest economy would be the wave that lifted all boats, helping emerging markets globally to a banner year.
Instead, Chinese stocks fell more than 15%, while many emerging markets did just fine.
“The first lesson is that you want to treat EM and EM ex-China differently,” Goldman’s Kamakshya Trivedi said in an interview. “Chinese assets have been pretty uncorrelated with a lot of other EM assets for some time: that has been true on the equity side and also the fixed-income side.”
The second lesson, he said, is about the resilience of broader emerging markets, even in the face of an “aggressive hiking cycle by the Fed, a strong dollar and a slowing China. That is a pretty bad combination of circumstances for EM assets and despite that, EM assets have performed resiliently.”
Strip out China, in fact, and emerging-market stocks have gained 16% this year, compared with just 4.4% for the MSCI emerging-market benchmark index where Chinese stocks are included, and account for nearly 30% of the total index by weight.
“From an EM standpoint, the biggest disappointment was the continued deceleration that we saw in China despite the cheap valuations, and that was a drag on EM assets all year,” Trivedi said.
