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Goldman HQ bullish on Vietman, Saudi but ACTUALLY not so hot on SA

Flag map of South Africa

JOHANNESBURG — There are lots of mixed messages coming out of investment bank, Goldman Sachs, on how it views South Africa. Many South Africans would have been pleasantly surprised earlier this year when the bank identified South Africa as the “big emerging market story” of 2018. A report by US and UK based Goldman analysts said: “South Africa is at the top of the list of potential candidates, given the market-friendly ANC leadership [outcome]”. Even President Cyril Ramaphosa couldn’t help himself but refer to these comments in his SONA. But this upbeat sentiment about South Africa doesn’t appear to be shared by Goldman’s CEO for International ops, Sheila Patel. She’s actually very lukewarm and non-committal on South Africa as an emerging market judging by her comments, and she is more upbeat about other emerging markets such as Saudi Arabia and Vietnam. – Gareth van Zyl

By Ben Bartenstein and William Mathis

(Bloomberg) – Emerging-market stocks are the world’s best investment after February’s rout cheapened valuations, according to Goldman Sachs Asset Management.

Unlike previous market corrections, when developing nations suffered big outflows, clients have been adding more money to the riskiest assets, said Sheila Patel, the chief executive officer of International GSAM. That’s been a sound strategy during the past month as emerging-market stocks returned 3.1 percent, beating the 2.5 percent gain for U.S. peers.

Sheila Patel, chief executive officer of International Goldman Sachs Asset Management (GSAM), speaks during an interview in New York, U.S., on Tuesday, March 13, 2018. Unlike past market corrections, when developing nations suffered big outflows, the money manager’s clients have been increasingly clambering into riskier assets, Patel said. Photographer: Christopher Goodney/Bloomberg

“It would be hard to find a time when you’ve felt more sanguine about the way things are,” she said in an interview at Bloomberg’s headquarters in New York. “That doesn’t mean we should relax, because there are things to make one nervous, but they tend to be about the structure of the markets.”

Goldman Sachs Group Inc.’s asset-management arm, which manages more than $1 trillion, joins GMO, Voya Investment Management and JPMorgan Chase & Co. in touting emerging markets to clients after the benchmark stock index surged more than 75 percent since early 2016. Bulls argue that developing-nation stocks are supported by earnings growth, cheap historical valuations and lower volatility than their more industrialized peers.

Patel says the firm is particularly positive on Indian healthcare firms, Mexican consumer stocks and Argentine debt. She expects India’s government will boost spending on public health under Prime Minister Narendra Modi. And although political risks can’t be ignored, investors’ pessimism toward Mexico and Argentina is overdone, she said.

Here’s what else Patel had to say about emerging markets:

Nafta talks and opportunities

“We are hopeful still some of this is about posturing and about micro-level negotiations rather than a full-on breakdown of Nafta. If you come at it with that backdrop and you look at Mexico, we see again, in the context of this more benign global economic environment, them as a beneficiary with the continuing support for middle class. And if that’s the case, then you have good opportunities with some of the consumer stocks. And with people’s concern over Nafta, you may have occasional interesting buying opportunities.”

‘Quite a bit of excitement’ on Saudi Arabia

“One of the places we’re spending time on that will likely be investable soon is Saudi. I think Saudi Arabia is definitely another location where given the likely MSCI inclusion and given again a very favorable demographic, there’s quite a bit of excitement among our clients to understand what opportunities might exist in terms of that market as it opens.”

Ramaphosa and South Africa’s trajectory

“We are cheered by the new president and we had been very reticent during this recent period of instability. I would say that when we look at South Africa, it’s that instability that’s kind of gated us from being too overly committed when we watch. I think we’re still a little slow-watching, but it gives us a basis for renewed analysis. We’re sort of opening the books again and saying time to look at it again, but we haven’t really made a strong move on that yet.”

Vietnam has ‘some really interesting opportunities’

“The add-on or the knock-on activity that comes from places like China is a real opportunity. As manufacturing has gotten more expensive in China, we’ve seen some really interesting opportunities in places like Vietnam. I don’t think maybe 10 years ago anybody would say Vietnam’s an opportunity because they’re a supplier to the Chinese consumer. Probably people would have thought that was crazy and today I think it’s a key investing theme.”

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