In a market environment where U.S. rate expectations dominate global risk sentiment, investors are re-evaluating the appeal of emerging markets. Goldman Sachs Research’s Caesar Maasry, who leads the Emerging Markets cross-asset strategy team, offers a deep-dive into the long stretch of underperformance that EMs have endured and outlines what their trajectory could look like as we head toward 2024. Recorded on November 9, 2023, the discussion provides nuanced perspectives on how rate dynamics, valuations, and macro forces intersect for investors seeking exposure to emerging markets. The recording includes standard disclosures about sources, currentness, and the nature of the content, emphasizing that the views expressed do not represent a formal recommendation or guaranteed forecasts, and that market conditions can change. These notes reflect general considerations rather than specific investment advice, and the speakers acknowledge that their views may diverge from other departments or affiliates within Goldman Sachs. The following article preserves the core meanings and ideas of that discussion, reframed for clarity, depth, and search-engine visibility.
Context and Market Dynamics: U.S. Rates, Global Flows, and the EM Experience
The opening premise centers on the central role of U.S. monetary policy in shaping global financial conditions. When the Federal Reserve adjusts policy rates or signals a change in the rate trajectory, the consequences ripple through currency markets, bond valuations, equity risk premia, and the willingness of global investors to deploy capital in higher-risk geographies. Emerging markets, which inherently carry greater sensitivity to shifts in global liquidity, respond to these moves with pronounced volatility. This dynamic creates cycles where EM risk assets are often at the mercy of U.S. rate expectations, even when domestic conditions in EM economies are improving.
Historically, prolonged periods of dollar strength or a higher-for-longer stance in the United States have tended to compress EM valuations and raise the external financing costs for EM borrowers. The cross-asset framework that Maasry leads emphasizes how shifts in yield curves, currency expectations, and risk appetite interact across asset classes to influence EM performance. In practice, a tighter U.S. policy outlook can attract capital away from EMs, appreciating the U.S. dollar and raising the local currency burden for EM governments and corporations that borrow in hard currency. Conversely, any signal of easing in the U.S. rate path can rekindle EM interest in global portfolios, as investors search for higher yields and diversification benefits.
The discussion also highlights that EMs have endured a historically long phase of underperformance relative to mature markets. Several converging forces contributed to this pattern: the strength of the U.S. dollar during many cycles, the global risk-off tone that often accompanies rate uncertainties, and structural factors within certain EM economies such as debt sustainability, inflation dynamics, and domestic policy responses. These factors did not vanish overnight; rather, they evolved with shifting global growth prospects, commodity cycles, and the pace of China’s economic trajectory, which still matters for many EM export-driven economies.
From a portfolio-constructive perspective, Maasry explains that the EM opportunity is not about masking risk but about understanding when and where conditions align for a multi-year improvement. This requires looking beyond headline performance to the underpinnings of earnings, fiscal sustainability, currency resilience, and the sensitivity of EM assets to global liquidity. A cross-asset approach helps investors evaluate EM exposures across equities, local- and hard-currency debt, currencies, and outright risk positioning. The overarching takeaway is that EMs can outperform when growth accelerates in tandem with a favorable global liquidity backdrop, and when company earnings, macro policy, and capital-flow dynamics align in a way that reduces downside risk and enhances resilience.
Key Drivers and Interactions
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Global liquidity and rate expectations: The central determinant for EM flows is how attractive returns look in a world where U.S. rates influence global borrowing costs and investor appetite for risk.
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Currency dynamics: EM currencies tend to perform best when inflation is controlled, policy is credible, and external financing remains manageable. Currency moves can either amplify EM equity gains or magnify losses, depending on the direction and speed of capital flows.
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Commodity cycles and export exposure: For EM economies with commodity-linked revenues, price moves can meaningfully affect growth trajectories and debt dynamics, thereby shaping equity and debt performance.
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China and regional linkages: China’s growth path and policy signals continue to influence demand for EM commodities, trade partners, and capital markets, adding another layer of sensitivity for EMs.
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Fiscal and monetary policy coordination: Domestic policy frameworks—inflation control, fiscal discipline, and credible targets—contribute to EM resilience, potentially offsetting headwinds from external rate shocks.
In sum, the context section establishes that the EM story is not static. It is a dynamic interplay of external rate regimes, currency and liquidity conditions, and domestic policy choices. The EM investment thesis depends on identifying moments when these factors align to support valuations, growth, and risk-adjusted returns, even in the face of a challenging global rate environment.
Emerging Markets Trajectory into 2024: What the Outlook Entails
Looking ahead toward 2024, the discussion pivots to what investors should monitor for EMs to break out of the long underperformance cycle. Maasry emphasizes that the trajectory hinges on a balance of macro catalysts, policy credibility, and the evolution of global risk sentiment. The core question is whether EM economies can sustain growth momentum, maintain inflation under control, and improve external balances in a way that attracts patient capital despite a cautious global backdrop.
A central theme is the potential for a more favorable rate environment to emerge as inflation cools in multiple regions and global growth stabilizes. In such a scenario, central banks might shift from aggressive tightening to a more gradual, data-dependent approach. If EM central banks can maintain credibility while navigating domestic demand and inflation pressures, their local yields could become more attractive relative to the risk-adjusted returns available in mature markets. The result could be a gradual normalization of EM risk premia, with selective pockets delivering sustained performance.
The discussion also considers structural improvements within EM economies that could support a constructive 2024 outlook. These improvements include progress on debt management and refinancing, more flexible exchange-rate regimes, and ongoing fiscal reforms that enhance long-term growth prospects. When these factors align with a steadier global rate path and improving external demand, EM equities and debt markets can participate in a broader market rally rather than decoupling from global risk-on cycles.
China’s reopening trajectory remains a critical variable. The pace at which China revives domestic demand, sustains manufacturing and services growth, and rebalances its own policy framework can reshape EM trade dynamics, commodity demand, and cross-border investment flows. A more robust Chinese recovery could bolster EM exporters, improve terms of trade for commodity-rich EMs, and support corporate earnings across the region. Nonetheless, the complex, interconnected nature of regional dynamics means that a positive China signal does not automatically translate into universal EM gains; careful stock-picking and debt management remain essential.
Inflation dynamics across EMs deserve particular attention. Several EM economies have demonstrated that they can bring inflation under control through credible policy actions, which, in turn, supports more stable growth. If inflation continues to ease, real policy rates in some EMs could provide a more attractive framework for investors seeking higher yields without taking on excessive risk. Conversely, EMs with persistent inflation or inconsistent policy messages may face sustained pressure on bonds and currencies, regardless of the broader risk environment.
Valuation levels are a practical lens through which investors assess EMs ahead of 2024. After an extended stretch of underperformance, some EM markets may present attractive risk-adjusted opportunities on the basis of relative valuations, earnings potential, and macro catalysts. However, valuation alone is not sufficient. The market must also reflect an improving growth outlook, credible policy paths, and a sustainable external balance. Maasry stresses that the timing and pacing of any renewed EM strength will depend on how these elements interact, rather than on a single macro trigger.
Sector and Regional Nuances
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Equity opportunities: Certain EM regions may demonstrate improving profitability, improving capital allocation, and stronger earnings growth catalysts as global demand stabilizes. Select sectors with resilient earnings profiles—such as technology-enabled services, consumer staples, and infrastructure-related industries—could contribute to headway.
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Debt markets: EM sovereign and corporate debt investors will watch refinancing cycles, fiscal discipline, and currency resilience. Local-currency debt might outperform in environments where inflation is contained and interest rate paths are clearer, while hard-currency debt remains sensitive to U.S. dollar shifts and global risk appetite.
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FX strategies: Currency considerations will be central to EM performance. A stable or modestly appreciating EM currency can support total returns, particularly when paired with improving risk sentiment. Conversely, persistent currency weakness can dampen returns even if growth improves.
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Corporate earnings: For EM equities, earnings quality and balance-sheet strength are critical. Companies with manageable leverage, solid cash flows, and exposure to growth sectors are better positioned to navigate volatility and deliver durable returns.
Maasry’s outlook for 2024 therefore weaves together multiple strands: a potentially friendlier rate backdrop, a China-driven growth impulse, stabilized commodity cycles, and policy credibility within EM economies. Yet he also cautions that the path is not guaranteed. The interplay of external shocks, policy shifts, and global risk sentiment means that investors should prepare for continued volatility and selective opportunities rather than a broad, immediate turnaround in all EM markets. The key for investors is to maintain discipline, diversify across assets, and emphasize risk management while remaining open to opportunities that meet robust criteria for growth, returns, and sustainability.
Practical Implications for Portfolios
From a portfolio construction standpoint, the EM opportunity set is not simply a bet on higher growth in emerging markets. It is a nuanced combination of exposure across asset classes, currency considerations, and a disciplined risk framework. The cross-asset strategy approach advocated by Maasry suggests a careful blend of EM equities, local and external debt, and currency positioning to optimize the risk-return profile.
Investors may consider a tiered exposure strategy that prioritizes regions with stronger balance sheets, credible policy frameworks, and clearer growth trajectories. Within equities, emphasis on high-quality earnings and resilience to global demand shifts can help mitigate downside risk. In fixed income, a focus on duration management, credit quality, and currency hedging can enhance resilience in the face of rate moves and currency volatility.
Portfolio stress-testing and scenario analysis are essential tools in this framework. By modeling various paths for U.S. rates, global liquidity, China’s reopening, and commodity cycles, investors can assess how EM exposures might fare under adverse but plausible conditions. This practice supports proactive risk management, informed rebalancing, and a more robust understanding of capital-at-risk under shifting macro regimes.
The Role of the Cross-Asset Strategy Team
Maasry’s leadership of the Emerging Markets cross-asset strategy team underlines the importance of an integrated view. Rather than focusing on a single EM market or a narrow asset class, the cross-asset lens evaluates how currency, equity, and debt interactions affect overall performance. This approach can reveal diversification benefits, identify mispricings, and highlight opportunities that might not be apparent in a siloed analysis.
For investors, collaborating with or following insights from cross-asset teams can offer a more holistic view of EM dynamics. The approach aims to translate macro forecasts into practical asset-allocations that reflect both opportunities and risks. While no strategy guarantees success, a disciplined cross-asset framework can improve the odds of capturing EM gains during favorable cycles and limiting losses during downturns.
Regulatory and Structural Considerations
Beyond cyclical factors, regulatory and structural reforms in EM economies can shape longer-term outcomes. Improvements in governance, transparency, and market infrastructure can increase investor confidence and support more stable capital flows. Structural reforms that enhance productivity, trade efficiency, and financial inclusivity can also broaden the base of potential investors and facilitate smoother refinancing for EM borrowers. These elements contribute to the durability of any EM investment thesis and are an important backdrop to the 2024 outlook.
From this forward-looking perspective, Maasry’s remarks emphasize caution and opportunity in equal measure. The EM landscape is inherently contingent on both global macro conditions and domestic policy credibility. Investors who understand this duality—anticipating rate-driven influences while assessing country-specific fundamentals—are better positioned to identify resilient opportunities as the year 2024 unfolds. The discussion thus encourages a careful, data-driven approach to EM exposure, with a clear emphasis on diversification, risk controls, and ongoing assessment of macro catalysts.
Risks, Uncertainties, and Scenario Planning: Navigating an Evolving EM Terrain
No forward-looking assessment is complete without a careful appraisal of risks. The EM landscape, particularly in a period of pronounced U.S. rate sensitivity, carries multiple layers of uncertainty. Maasry and the Goldman Sachs Research framework highlight several risk factors that could influence EM performance in 2024 and beyond.
Key Risk Dimensions
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Interest-rate risk and rate surprises: The path of U.S. monetary policy continues to be a central driver. Unexpected shifts in rate expectations can trigger rapid repricing across EM assets, as investors re-evaluate yields, currency prospects, and risk premiums.
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Currency volatility: EM currencies are typically more volatile than those of developed markets. Sharp moves can impact local debt service costs, corporate earnings in USD terms, and investor demand for EM risk assets.
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Inflation and policy credibility: Inflation trajectories in EM economies can diverge from expectations. Where inflation proves persistent or policy credibility is questioned, risk premia may widen and asset performance can deteriorate.
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External debt pressures: EMs with higher levels of foreign currency-denominated debt are more exposed to美元-hedging costs and refinancing risks, particularly during periods of dollar strength or global risk-off trading.
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China and regional dynamics: The trajectory of China’s growth and policy choices continues to influence EM demand, commodity prices, and regional capital flows. Variations in China’s reopening pace or policy stance can introduce spillovers that complicate EM performance.
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Global growth and commodity cycles: EMs that export commodities or rely on global demand for manufactured goods are sensitive to shifts in global growth momentum and commodity price cycles. Weak growth or price volatility can weigh on export-dependent EMs.
Scenario Analysis and Preparedness
A robust EM investment plan incorporates multiple scenarios. For instance, a favorable scenario might feature a stabilizing U.S. rate path, improving global growth, a constructive China reopening, and stable commodity markets. In this context, EM assets could experience a broad-based uplift, with supportive currency moves and stronger earnings growth. Conversely, a less favorable scenario could involve renewed rate shocks, persistent inflation in EMs, and a re-escalation of geopolitical tensions. Under such conditions, risk controls, hedging, and selective exposure become critical.
Investors should consider stress-testing portfolios against these conditions. This includes evaluating how EM exposures behave under sustained U.S. rate hikes, sudden dollar strength, or sharp changes in commodity prices. Scenario planning helps identify which EM regions, sectors, or credit instruments offer the most resilience and which carry heightened vulnerability.
Risk Mitigation Techniques
- Diversification across regions and asset classes to reduce idiosyncratic risk.
- Currency hedging to manage exchange-rate exposure and limit downside from FX volatility.
- Quality screening to emphasize assets with strong balance sheets and credible policy frameworks.
- Active risk management to respond to shifting macro signals and to rebalance portfolios as conditions evolve.
Practical Guidance for Investors
The practical implication of these risk considerations is clear: investors should maintain a disciplined approach to EM allocations, anchored by credible macro analysis, diversified exposures, and proactive risk management. The goal is to balance the potential for higher returns with a measured awareness of the structural and cyclical risks inherent in EM markets. While the EM thesis may be compelling under certain conditions, it remains essential to monitor the evolving global backdrop and adapt strategies accordingly.
Conclusion
In a market era where U.S. rate expectations largely shape global financial conditions, emerging markets present a nuanced but potentially rewarding opportunity. The insights from Caesar Maasry of Goldman Sachs Research’s Emerging Markets cross-asset strategy team underscore the prolonged underperformance in EMs and the conditions under which a brighter trajectory toward 2024 could emerge. The discussion, recorded on November 9, 2023, emphasizes the need for a cross-asset approach, careful risk management, and disciplined selection across regions, sectors, and instruments.
For investors, the central takeaway is that EM opportunities arise not from a single catalytic event but from the alignment of multiple forces: a more favorable rate path, improved growth prospects in select EM economies, credible domestic policies, resilient currency dynamics, and external demand supported by regional growth drivers. A thoughtful, diversified, and risk-aware strategy is essential to navigate EM markets as they respond to U.S. rate signals, global growth shifts, and the evolving macro landscape.
The discussion also reiterates that the content reflects the speakers’ views and is based on publicly available information as of the recording date. It does not constitute a formal product of Goldman Sachs Global Investment Research, nor should it be interpreted as financial advice or a recommendation to engage in any particular transaction. The perspectives may differ from those of other Goldman Sachs departments or affiliates, and there is no obligation to provide updates or to maintain the information herein. Investors should perform their own analyses and consult their financial advisor before making investment decisions.
