Goldman Sachs: Room To Run, After A November To Remember

Goldman Sachs note that "for many high- and mid-yielding cyclical EM currencies, it has been a November to remember: as the US election outcome has risen investor expectations for the potential for an easing in US-China trade tensions, and as headlines on vaccine approval have exceeded expectations, BRL, COP, IDR, MXN, RUB and ZAR have each been among the best-performing major currencies since US polls closed on November 3rd. With the market now grappling with near-term downside risks to the US fiscal and global public health outlook, as well as with difficult questions around vaccine acquisition and distribution in many EMs, the Sharpe Ratio of EM high-yielding longs in December may not be as attractive as that of November. Still, even after the move stronger over the past month, our metrics continue to suggest that EM high-yielding FX remains a "pocket of deep value," compared to many G10 currencies, and compared to other EM asset classes. We recommend that investors combine value, cyclical beta, and carry by staying long MXN, ZAR and INR, and, after pricing in significant political risk premium, and with the potential for higher oil prices into and through 2021, RUB longs now also appear attractive."