Goldman’s Asset Arm Says Emerging Markets Catching Only ‘First Wave’ of Flows

Goldman Sachs Asset Management anticipates further gains for emerging markets, noting the asset class is only capturing the "first wave" of renewed capital flows. This optimistic view stems from a resurgence in diversification demand and historically light positioning, suggesting a significant turning point after years of EM outflows and a shift from US-centric risk-taking.

Analysis

Goldman Sachs Asset Management presents a strongly bullish outlook on emerging markets (EM), positing that recent capital inflows represent only the 'first wave' of a larger, impending trend. According to Anupam Damani, the firm's co-head of emerging-market debt, this view is supported by a fundamental shift in investor behavior, specifically a renewed appetite for diversification after years of US-centric risk concentration. The analysis highlights that current investor positioning in EM is light, suggesting significant capacity for further investment. This combination of recovering demand and low ownership indicates a potential turning point for the asset class, which has experienced sustained outflows in recent years as the 'flow tide is turning'.

Key Decisions for Investors

• Investors with underweight exposure to emerging markets should consider increasing their allocation to capture what Goldman Sachs Asset Management sees as the beginning of a sustained inflow cycle.
• It is prudent to monitor fund flow data into EM debt and equity to validate if this 'first wave' is building into a broader, more durable trend, which would confirm the thesis.
• Portfolio managers should re-evaluate the risk-reward profile of heavy concentrations in US assets, as the described shift towards diversification could drive relative underperformance if capital rotates into emerging markets.