Goldman Sachs Sees Emerging Markets Stocks and Currencies Rallying to Year-End

Emerging markets stocks and currencies are set to extend their rally into year-end, supported by strong earnings, a weaker U.S. dollar, and rising investor appetite for diversification, according to Goldman Sachs Research.

“We think the EM equity rally can extend into the year-end as macro trends and capital inflows remain supportive,” wrote Kamakshya Trivedi, Goldman Sachs’ chief foreign exchange and emerging markets strategist.

Goldman Sachs raised its 12-month forecast for the MSCI Emerging Markets index to 1,480, up from 1,373, implying an 8% upside from current levels.

The bank expects emerging market company earnings to grow 9% this year and 14% in 2026, fuelled by stronger technology demand and the global artificial intelligence boom.

A softer U.S. dollar is also expected to drive flows into emerging markets. The dollar “will likely stay on the back foot” as the Federal Reserve continues easing, Goldman Sachs said, noting that a weaker greenback typically boosts EM assets.

Regionally, the bank highlighted opportunities in South Korea, Taiwan, and China, citing exposure to fast-growing technology sectors.

Korean equities, where “70% of stocks trade below book value,” could benefit from corporate reforms, while Saudi stocks may gain from relaxed foreign ownership limits, potentially attracting $10 billion in inflows, according to Goldman.

Meanwhile, South African shares may continue to rise on higher gold prices and lower borrowing costs, the bank added.

Emerging market currencies, already outperforming developed peers, should continue strengthening. “The best environment for EM foreign exchange is when both the MSCI EM and S&P indices are going up and MSCI EM is outperforming,” Trivedi wrote.