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EM aren’t vulnerable to traditional sell-off this May

The leading world's economy - the United States - has performed quite steady recently, especially in the first quarter of 2019. Gross Domestic Product grew much faster than analysts were forecasting earlier; the labour market is in incredibly great shape as the number of Non-Farm Payrolls beat the market consensus for the third month in a row. Even though the wage growth is still limited, consumer spending is sustainable, while trade balance keeps improving. All of those economic factors caused particular support to the global economy in general and emerging markets in particular, according to Goldman Sachs's analysts. Therefore, EM assets might avoid traditional sell-off, which used to hold growth in the developing countries for the latest decade. 

Although some of the long-term investors started taking profits in the first week of May, EM assets did not decline sharply last week. US 10-year Treasury yields edged higher, signalling an additional demand for safe-haven assets. Japanese yen strengthened despite the growth in US equities. However, the price of gold dipped recently, and the world's reserve currency retraced from the 2-year peak. The combination of those factors showed that the carry-trade speculative flows are still robust, and global traders might keep buying high-yield emerging markets assets even in May and June this year. 

Traditional seasonal influence on bonds, shares and currencies in the developing countries show that the first four months of the year are usually profitable and positive for those kinds of financial instruments. Then comes the pre-summer month of May, and some of the investors use a proverb which says 'sell in May and go away'. The meaning of the phrase is that global investors are not so active during the vacation period which starts in June, therefore, they do not expect EM assets to keep snowballing. That's why they prefer taking out their money on the market and keep the cash free for future investments in the Autumn season. However, this year might be different, according to Goldman Sachs's analytical report showing that the pace of demand and speculative flows in EM currencies remained stable, while further growth potential keeps the momentum. The basic scenario suggests that the strong rally, which started at the beginning of this year, should continue throughout the second quarter.


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