Goldie Recommends an EM Exit Visa

(Bloomberg) Goldman Sachs Group Inc. recommended closing out its suggested bet that emerging market stocks will outperform the Standard & Poor’s 500 Index, citing improving U.S. economic data and inflation in developing nations.  Investors should close positions that benefit from outperformance of the iShares MSCI Emerging Markets Index Fund over the S&P 500 with a potential profit of 2.3 percent, Goldman Sachs strategists said in a note to clients.

“The near-term outlook for this type of relative trade versus the U.S. is more muddied than it has been for some time,” the report said. Equities in emerging markets “should remain broadly well-supported, but after a strong run since September, it will be important to be more selective going forward.”

The Goldman analysts cited improving American jobs data and faster-than-estimated growth in the Institute for Supply Management’s index of U.S. service industries as reasons to exit the trade now, as well as inflation and policy tightening being “back squarely on the emerging-market policy agenda.” 

Just a thought here, what will happen to EM debt should policy tightening and inflation jump back into EM?  Perhaps its time to take some of this risk off the table or ensure you are not over exposed.  Or maybe you could say "at least I am not in Ireland or Greece", but will this help the pain when the EM risk trade reverses?

I am not saying unwind because Goldman said so (which could possibly mean they are a buyer), but perhaps a conversation on the subject is warranted.

Yeah, this isn't your father's debt returns!