THE EM TRADER: Oil Relief, Fed Pressure

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THE EM TRADER: Oil Relief, Fed Pressure

Goldman Sachs The EM Trader

given ample room to rebound and a relatively attractive earnings/valuation

risk-reward. By contrast, South East Asian oil importers look less attractive as

fundamental improvements are likely to be limited under our baseline oil forecasts

and risk-reward based on PEG ratios looks relatively less attractive. Similarly, despite

the meaningful underperformance of Chinese offshore equities so far this year, weak

macro data, an index composition dominated by Software & Consumer Tech-related

stocks and lack of concrete earnings delivery could keep the market range-bound in

the near term, although onshore equities (A-shares) remain better placed given their

greater exposure to manufacturing and AI hardware.

n EGP: More Upside, But More Gradually from Here. We stepped back into a long

Egyptian Pound (EGP) view after the ceasefire announcement in April given limited

retracement and still solid fundamentals for a carry trade. In anticipation of an

Iran-US deal earlier this week, EGP had partly retraced its war-related weakening,

appreciating by more than 3% in two sessions, albeit moving back a touch post the

hawkish Fed. We remain constructive on EGP in the medium term, and reflecting this,

we have introduced USD/EGP forecasts for a gradual appreciation, at 49/48/46 in

3/6/12 months. We see three reasons justifying further appreciation from here.

First, even with the recent appreciation, EGP has only partly retraced its weakening

since the war began, which was one of the largest on a volatility-adjusted basis in the

EM and Frontier FX space. Second, despite the recent strengthening, EGP is still

significantly undervalued according to our GSDEER and REER metrics. And third, in a