Emerging-Market Second-Quarter Earnings Beat Expectations, Opening a Valuation-Recovery Window
A Goldman Sachs research note says the MSCI Emerging Markets Index gained 2.1% for the week, while South Korea rebounded 20% in a single Friday session.
A Goldman Sachs research note says the MSCI Emerging Markets Index gained 2.1% for the week, while South Korea rebounded 20% in a single Friday session.
More than half of emerging-market companies by market capitalization that have reported second-quarter earnings posted year-over-year earnings growth of 85%, significantly above the 64% growth expected at the start of the quarter. The number of earnings beats far exceeded the number of misses.
Nontechnology emerging-market sectors have responded moderately to the energy shock caused by the U.S.-Iran conflict. Strong micro-level fundamentals have buffered downside risks. The report implies that the broadening of emerging-market earnings will expand from technology into nontechnology sectors, although the market remains concentrated in technology.
The note describes the underlying sequence as stronger-than-expected second-quarter earnings leading to resilient micro fundamentals, foreign-investor inflows and valuation recovery. Market pricing for emerging markets remains cautious, and the breadth of earnings beats has not yet been fully reflected in valuations.
The note identifies potential trading implications in favor of Taiwan, South Korea and Brazil, as well as technology hardware, banks, capital goods, and metals and mining. Its one-sentence conclusion is that strong, above-expectation second-quarter earnings and resilient micro fundamentals are supporting emerging markets, while room for valuation recovery is opening. The note specifically highlights overweighting technology hardware, banks and capital goods; this is the source's view, not an independent recommendation.
The note characterizes the MSCI Emerging Markets Index overall, Taiwan, South Korea and Brazil, and the technology hardware, banking, capital goods, and metals and mining sectors as beneficiaries. It says the breadth of earnings beats is not yet fully reflected in valuations and that the market still has further upside potential.
The catalysts identified are: further second-quarter earnings reports confirming the above-expectation trend; the durability of foreign-investor inflows into emerging markets; and whether improving earnings in nontechnology sectors can take over from technology-sector strength.
More than half of emerging-market companies by market capitalization that have reported second-quarter earnings posted year-over-year earnings growth of 85%, significantly above the 64% growth expected at the start of the quarter. The number of earnings beats far exceeded the number of misses.
Nontechnology emerging-market sectors have responded moderately to the energy shock caused by the U.S.-Iran conflict. Strong micro-level fundamentals have buffered downside risks. The report implies that the broadening of emerging-market earnings will expand from technology into nontechnology sectors, although the market remains concentrated in technology.
The note describes the underlying sequence as stronger-than-expected second-quarter earnings leading to resilient micro fundamentals, foreign-investor inflows and valuation recovery. Market pricing for emerging markets remains cautious, and the breadth of earnings beats has not yet been fully reflected in valuations.
The note identifies potential trading implications in favor of Taiwan, South Korea and Brazil, as well as technology hardware, banks, capital goods, and metals and mining. Its one-sentence conclusion is that strong, above-expectation second-quarter earnings and resilient micro fundamentals are supporting emerging markets, while room for valuation recovery is opening. The note specifically highlights overweighting technology hardware, banks and capital goods; this is the source's view, not an independent recommendation.
The note characterizes the MSCI Emerging Markets Index overall, Taiwan, South Korea and Brazil, and the technology hardware, banking, capital goods, and metals and mining sectors as beneficiaries. It says the breadth of earnings beats is not yet fully reflected in valuations and that the market still has further upside potential.
The catalysts identified are: further second-quarter earnings reports confirming the above-expectation trend; the durability of foreign-investor inflows into emerging markets; and whether improving earnings in nontechnology sectors can take over from technology-sector strength.