Goldman's currency head is in two minds about China. He has a good reason though

The skittishness over China is forcing Goldman Sachs' head of global currency to do a rethink on the Wall Street bank's strategy for emerging markets. Goldman was among the many who bet their money on a post pandemic boom for the world's second-largest economy, expecting it to prop emerging markets globally towards a banner year. 

It turned out to be one of the biggest bad calls for 2023 -- Chinese stocks fell over 15%, while many emerging markets held steady.

“You want to treat EM and EM ex-China differently,” Goldman’s Kamakshya Trivedi told Bloomberg TV in a report. “Chinese assets have been pretty uncorrelated with a lot of other EM assets for some time: that has been true on the equity side and also the fixed-income side,” he said in the interview, adding that despite an "aggressive hiking cycle by the Fed, a strong dollar and a slowing China, EM assets have performed resiliently.”

Trivedi termed the continued deceleration in China despite the valuations a dissapointment from an EM point of view. Take China out of the picture and emerging-market stocks gained 16% this year, compared with just 4.4% for the MSCI emerging-market benchmark index where Chinese stocks are included, and account for nearly 30% of the total index by weight.

So what kept the EM kitty intact? Trivedi attributes it to policy actions. "Emerging-market central banks hiked interest rates early, proactively and aggressively to address the coming inflationary shock. The fact that they were ahead of the game compared to a lot of developed markets I think definitely helped them,” he told Bloomberg. “That macro combination is looking much better than what it has been, and that is a pretty positive thing for EM assets. We expect to see positive total returns in EM assets next year.”