Under the much better-than-expected U. S. inflation data, U. S. stocks led the global market slump. But before this round of adjustment, Goldman Sachs Group has set his sights on the second half of the year, focusing on emerging markets.

In a research report on Monday, analysts Caesar Maasry and Ron Gray of Goldman Sachs Group said that while the overall GDP performance of emerging markets is not expected to exceed that of developed markets this year, Latin America and CEEMEA countries have great growth potential.

therefore,Goldman Sachs Group expects emerging markets excluding North Asia (Mexico, South Africa, Russia, India and Brazil) to outperform developed economies by 15 per cent over the next 12 months.

Why do emerging markets outperform developed markets? In Goldman Sachs Group's view, the best single reason is simple--There are differences in economic growth between the two sides.

Overall, advanced economies will grow by a strong 5.9 per cent this year, well above-5.1 per cent in 2020, while emerging economies will perform better, climbing to 7.3 per cent from minus 2 per cent in 2020, according to Goldman Sachs Group's forecast.

In the meantime, Goldman Sachs Group also sawCyclical exposure within emerging markets still has room to recover in the second half of this year, and emerging markets with the exception of North Asia are expected to perform strongly in the second half, especially equities.

The reason is that emerging market stocks excluding Asia underperformed developed markets by 24 percentage points during the epidemic crisis in the first quarter of last year and have outperformed by only 5 percentage points since their lows.

Asian emerging market stocks, by contrast, outperformed developed markets by 1 percentage point during the crisis and have outperformed by another 4 percentage points since then.

Within emerging markets, North Asia, which accounts for 2/3 of the market capitalization of MSCI emerging markets, has performed prominently since the financial crisis, rising 152 per cent so far in the second quarter of 2009, while emerging market stocks excluding it are up only 18 per cent.

Interestingly, there are similar differences in developed markets: us stocks are up 362 per cent since the second quarter of 2009, while European stocks are up just 72 per cent.

Goldman Sachs Group found that emerging markets excluding North Asia share similar long-term trends with European stock markets, and that the periods during which stock markets in both regions outperformed US stocks (2018, mid-2020 and early this year) coincided with the time when US stocks were hit by interest rates.

Goldman Sachs Group believes thatGiven that 10-year Treasury yields are still likely to rise to 1.9 per cent in the coming months, emerging markets excluding North Asia may rise briefly.

But Goldman Sachs Group also said that the catalyst for the stock market to move higher will eventually fall on the improvement of economic data.

In recent months, the US and European PMI have broken through the 60% barrier, and the market's attention has turned directly to the "peak growth", as opposed to emerging economies.

If you look at North Asia, although its PMI is only around 55, given that the region's PMI has never fallen below 45, the current figure still represents an extremely strong recovery.

However, emerging market PMI data excluding North Asia have not rebounded as meaningfully as in other regions and have not rebounded above the bust line.

Goldman Sachs Group pointed out that a more severe recession and continued blockades caused by high infection rates could lead to poor economic performance in the above-mentioned emerging economies, but it is also good news that corporate profits have finally improved.

Referring to the epidemic situation, Goldman Sachs Group said bluntlyThe macro resistance to emerging market recovery remains a potential rise in infection rates and further blockades, as well as delays in economic restart.

Goldman Sachs Group specifically mentioned that the second wave of the epidemic in Brazil has slowed down, the country has reopened, and the stock market has obviously outperformed other markets in the past two months.

India, which is suffering from a severe epidemic, has recently imposed a massive blockade, with the stock market bottoming out relative to other emerging markets about two weeks ago, suggesting that investors are expecting dawn to come.

So where is the valuation of emerging market stocks now?

With the exception of North Asia, emerging market stocks trade at about 12 times earnings, while the MSCI global index trades at 21 times earnings, the biggest discount ever and 26 per cent lower than the "fair value" based on differences in macroeconomic growth, said Goldman Sachs Group.

Which meansThe return on emerging market equities excluding North Asia is likely to be another 12 per cent higher than current levels.