Goldman Sachs is bullish on Turkey, Brazil

Welcome to our world, Goldman Sachs. Underperformers in the world’s emerging markets are turning into relative outperformers, and there is still time for traders to catch up.

Goldman likes the way that Turkish stocks are performing in the face of the local currency’s 4% bounce off its August low during the last week.

In fact, since the lira bottomed out on Aug. 22, the Turkish fund TUR has rebounded a full 7.2%, but is still easily 40% below the April highs:

We have been noting for months that concerns that Turkey is overheating have been overdone. Even a global slowdown will only help the country manage its domestic deficit and make its relatively strong growth more appealing.

Likewise, the Brazilian rate cut made a big impression at Goldman. We now know that traders will pay a premium to get into countries that are quick to shifting their monetary policy goals.

From here, you can compare performance of Brazil funds like EWZ to funds like EZU, which track stocks in indecision-wracked Europe, to see this play out:

Goldman also likes Russian stocks as the country moves into its election season over the next six months.

They find the Rosneft/ExxonMobil (XOM) deal officially “encouraging” on the corporate governance front and also like the news flow from steel names like Mechel (MTL).

In general, emerging markets stocks have lagged their counterparts in the developed world. They are beginning to catch up now — much like the Wall Street analysts are catching up to the fundamental story here — and there is a good argument here to go overweight on emerging exposure for awhile.

The simplest way to do this is to go long a fund like EEM while trimming positions in developed-market funds like EFA or even the S&P 500 (SPY) itself.

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